Short Sales Simplified
There seems to be a lot of confusion today about short sales. Many buyer’s agents don’t want to show them. Buyers get frustrated with waiting. Even the sellers and the seller’s agents don’t know for sure what the bank is going to do. This is because unlike a regular sale between a buyer and seller, two parties who can make decisions and negotiate a binding contract, in a short sale the bank who holds the mortgage on the property is not a party to the contract. However, the bank is the one making the decision on whether or not a contract can be made binding.
The goal in a short sale is a letter from the bank in which they agree to accept less than the full amount owed. This letter also spells out what closing costs the bank will allow. This can sometimes take weeks or even months.
Often the property is in foreclosure with the auction dates being extended depending on the state of negotiations. Add in a second mortgage or third mortgage lender and things can get complicated. All this can delay the process for months and at the end of the day there is no guarantee of success. No wonder folks are frustrated and confused.
On the bright side, short sales can offer a great opportunity to get a super deal in this market. The seller is highly motivated and from the sellers point of view the property may be sold for whatever the bank approves. This leaves pricing to the buyer. Does this mean a buyer can offer any low price? Of course not, but a savvy buyer can offer the lowest price they deem reasonable. A buyer must consider property condition, recent sales and how much other buyer interests exist. In the end the buyer sets their price and it is then up to the seller’s agent to sell the deal to the bank.
This is when the process takes time. Each lender works on their own timetable. There is no standardized process. Steps the bank will take include ordering their own appraisal or BPO (Broker Price Opinion), verifying the seller’s hardship and examining all the closing costs. When more than one bank is involved, they each do their own work independently. Hopefully they arrive at the same fair market value and then the seller’s agent must negotiate a settlement between the two lenders. The first lender must offer an amount the second lender will accept or the property cannot close.
The seller’s agent should keep the buyers agent updated along the way. And unless otherwise agreed to beforehand, if a buyer finds another house, then they may withdraw anytime prior to opening escrow.
Once the bank approves a contract and issues a letter the transaction should progress like a normal sale with escrow closing in two to six weeks.
Still interested in buying a short sale? Just be sure your agent is experienced in these transactions and you both have the patience for the process. In the end you just may make a super deal.
If you must sell your home in this market and you owe more than it’s worth, a short sale may be your better alternative. Call us to discuss your questions. Take our quick quiz to see if you qualify for a short sale. And, whatever you do, do not despair. You are not alone. This market has affected many folks but for all of us the future holds promise if we only let it.