Bank Sales

Short-Sale Properties; How the Process Works, Process, Timeline, Bottom Line, etc.

When going to purchase a property on our website, you may have noticed that particular listing are listed as short sales, short pays, or pre-foreclosures. What does that even mean? Everything listed is identical: the seller is desperate to sell their property (usually from being upside-down on a mortgage), and is making an attempt to make a deal with the buyer/lender in a hope to avoid a foreclosure on the property.

Particular with these types of sales, the bank (lender) makes an agreement to consent to less than the amount owed on the mortgage. This type of settlement grants an advantage to the bank, as this allows the bank to steer away from retaking the property in a foreclosure, which tends to be expensive and time-consuming on their part. The short sale also benefits the seller by authorizing him or her to sidestep from negative credit aftermath of foreclosure (including the bankruptcy that might accompany it).

If you are keen on purchasing a property that is listed on short sale, here are some things that you need to know before.

How a Short Sale Operates

Unalike from a foreclosure, the bank does not possess the property in a short sale. Regardless, because the bank must agree of the sale (because it is the lender, not the seller, who shall be receiving a loss from the property) it will appear like the buyer is obtaining the property from the bank. Netherless, short-sale transactions can be much more time-consuming and tolerance-testing than foreclosure transactions.

Purchasing a short-sale property at times can be just like a traditional purchase. Nevertheless, there are at certain times a few ways in which the purchase agreement you and your agent formulate are separate.

The contract shall state that the conditions are subject to the mortgage lender’s approval. In a normal, usual transaction, the only party who would actually need to authorize the sale is the seller.

The contract should also state that the property shall be purchased “as-is”

The contract should also state that the property is being purchased "as-is". Even though it is reasonable to include wording in the contract that authorizes you to withdraw from the deal if an inspection divulges substantial problems, in general, nobody should anticipate the bank to decrease the price to make up for repairs if any problems are revealed. The bank is also unlikely to make any repairs, and the seller, being strapped for cash, is probably even less likely to help out. Given the situation, you'll likely also need to have enough money for closing costs.

Waiting is the Main Game

If you decide to make a proposition on a short sale property, be prepared to wait. What banks are infamous for is taking as long as several months to respond to short sale offers. Some experts advocate to set a deadline for the lender to reduce the wait time. It is pretty difficult to state whether this plan will really stimulate the bank to action, but it but it is worth a try from your part if you cannot handle the stress of waiting several months just for a response. On the other hand, if the bank has not yet approved the short sale at the time of your offer, executing a deadline will be to no effect, as it may take many months just for the seller to reach a short sale agreement with the lender. Even if such an agreement is made, there will be a guarantee that the short sale will make it through.

Weighing in on the Pros and Cons

Some experts do not agree on if short sales are a good deal for buyers. Some people claim that short sales are priced below the market values, creating the opportunity for buyers to get an amazing deal. First-time homebuyers can also get into a home that would be out of their budget without the short sale.

Other specialists claim that banks have no involvement in selling properties below the market value. They will also do a comparable market analysis before establishing or agreeing a price for a short sale. Further, the listing price of a short sale may be a quantity the seller's agent thinks the bank might want to accept - rather than the amount the bank has actually agreed to accept. The bank might perceive the price as too low for them, or the seller might list the property below market value with the sole intention of creating a bidding war. In certain states, the seller will be obligated to pay the bank back the difference between the mortgage amount and the sale price of the home, so it's in the seller's most relevance to get as much money as possible for the home even though he or she will see no cash from the sale.

Better Living Conditions

One advantage that short sales bring to the table for both the bank and the seller is that as apposed to a bank-owned property, a short sale property is less likely to be wrecked or ruined. The owner will probably anyway be occupying the home. During that time the property may still be experiencing postponed maintenance because of the seller's financial situation, but they will not likely to destroy the place when he or she is still living in it. Compared to short sales, homeowners who no longer have their properties to foreclosure usually take out their frustration out on the house as a way of getting back at the bank. If the property is ruined, the bank will not be able to produce as much profit when it resells the home as if they had the home in good condition.

Also, because short sale properties are usually occupied at the time, these properties will be maintained much better, and won’t suffer from shameless people who have decided to occupy or vandalize the property. Vandalism is most of the time a common problem with foreclosure properties, especially in lower-income neighborhoods.

Never presume any property is an amazing deal just for the fact that it is a short sale, though. Do your own personal similar market evaluation. The bank is experiencing a losing transaction with one, so they will try to minimize its losses by as much as possible and sell the house/unit for as close to fair market value as they can make. If you can buy a equivalently priced property directly from the seller, do it. It will be a large amount easier than dealing with a short sale. Also, if you make it to the escrow stage, never skip a thorough home inspection, as any problems popping out in the future will be much harder to deal with.

Hazards and Safety Measures

As you have probably realized by now, short sale transactions are filled with hazards and don't have many advantages that make up for it. If you still want to proceed in an attempt to snag a good bargain or just simply for a property that's perfect for you happen to be listed as a short sale, here are some precautions you should take and situations to be wary of.

Experience

Make sure the agent you have hired is experienced with short sales. Because of the difficulty of this type of arrangement, you do not want to work with someone who is not accustomed to short sales. Also, confirm that your agent is willing to work with you with the process. Some agents are not willing to go forward with the procedure due to shoddy past experiences or the bad reputation that short sales get. Not only are short sales more work that agents have to do, but they also sometimes get less commission from them. The bank usually is not willing to pay the listing agent the usual 5-6% commission that they receive because it is already taking a loss on the short sale as explained before.Also, the buyer's agent only gets a percentage of a percentage, so those agents see even less commission.

Furthermore, trying to find out if the listing agent is knowledgeable with short sales is a very good idea. Even though the bank is in control in the end, a listing agent who knows the ropes may be able to facilitate or expedite the transaction.

Keep the Search Going

Taking into account how long it takes for the bank to reply to a short sale offer offer, it would be a good idea to keep looking for houses while you wait for a response. You should go on with buying another property if the purchase is easier to fulfill. Make sure that your agent writes the short sale agreement in such a way that you will get the flexibility that you need. If you are buying on a deadline, do not even attempt to go for a short sale, as patience and time are required for a short sale to go correctly.

Haggling Over Prices

Something you should prepare for is raising your offering price. For the seller to increase the odds of the bank going through with the short sale, he or she may try to convince you to up your purchase price. In conclusion, though, the seller has no tangible jurisdiction of consent to the selling price. The bank may also counteroffer as it tries to cut its losses.

What is even worse is that the bank could carry on with collecting offers, even if you already make it to the escrow stage. Most people would label this as immoral behavior, mainly because the possible buyer likely shelled out a few thousand just on inspections, title searches, and similar procedures at this point. Being dumped so late in the deal is a huge waste of time and money for the buyer. In addition, it is also extremely frustrating. In conclusion, the listing price of a short sale must be taken with a healthy dose of skepticism.

However, the bank does not always counteroffer. They could just reject your offer instantaneously, particularly if you have written a considerably lower priced offer than shown. Or, in the worst case scenario possible, they could just not reply at all. Ever.

Seller Must Be in Official Default

Always check that the short sale is already lender approved. If the seller hasn’t already gone into default yet, the bank may not be interested in partaking in a short sale. The bank may also not want to be involved in a short sale if they think that the property can get more money by going into foreclosure.

Short sales are already difficult because of the involvement of the original lender. If there are two lenders, the difficulty of completing the transaction doubles. Completing a short sale takes a considerable amount of time, and also convincing to get a bank to agree to a short sale takes time. So if they haven’t agreed already, don't waste your time.

The Bottom Line...

Any future purchasers of short-sale properties should begin with a large amount of caution and a ton of patience. Although short sales could land the ultimate deal, they are very risky. Even the best agents do not always go through with the short sale, as there are many variables that make or break a deal.