Short sale process: What you should consider when pursuing one
A short sale is when someone sells their home for less than the balance remaining on their mortgage. There are pros and cons to pursuing a short sale.
There are a few reasons a lender would grant a short sale to a homeowner:
• Hardship — unemployment, divorce, medical emergency, job transfer, bankruptcy, death.
• They owe more on the mortgage than the home is worth.
The short sale process is very similar to a regular home sale, with the exception that the real estate agent will send any offers on the home to the lender for approval or counteroffer. Once there is an agreement on price, the standard sale and closing process will occur.
If you are buying a short sale home, you are buying “as-is”. While you are able to back out of the deal if an inspection reveals major problems, you are not able to negotiate for a lower price for repairs, and neither the lender nor seller will likely make any repairs. If you’re looking into buying a short sale home, it’s important to have money for closing costs and repairs.
A few things to keep in mind if you’re considering buying a short sale home:
• You must be patient — The lender or lenders (if there is more than one mortgage) has to approve the sale before you can close. This could take several months.
• Your financing needs to be in order — Look into getting preapproved. If it’s an option, make an all-cash offer.
• You need to be flexible — Be willing to change closing terms and make an offer with no contingencies.
Tom, a homeowner, explains: “That was really the big thing with short sales for us, it takes so much longer than you think it’s going to take, even when you have people telling you, you know, “Well, this is your closing date” or “this is when the paperwork should go through” and then it turns out it takes, you know, two, three or more months longer than that. So, flexibility is your friend when you’re doing a short sale”.
AMY: It’s not short, it’s not quick. It’s a very long process, and what it is is when the home owner is in a financial situation where they need to sell their home, but in order to do so they are not going to be able to make enough money, sell it for enough, in order to pay off their mortgage, so basically they’re coming up short on that mortgage payoff and that’s why it’s called a short sale.
TOM: So when you put an offer in on a short sale not only does it have to be approved by the owner of the home but it also has to be approved by the lien holder or the mortgage holder of whoever owns the home at the time.
CHRIS: You can buy a home substantially under market value. If time is on your side and you’re willing to wait it out and potentially lose a property that you have a bid on, even after waiting six months or longer, and still not get that property–if you’re flexible on time, if you’re flexible on the property–it could be great.
CHRIS: One of the problems with short sales is most lenders will leave that property open for other offers, even if the seller has accepted your offer, the lender can reel in multiple offers even if the seller has signed a contract to accept your offer contingent on the bank’s approval. So, you could be outbid in month seven after waiting for seven months.
TOM: The most important thing that I would say for when dealing with a short sale is to get with an agent or a realtor that has some experience with short sales, and can guide you through it, because they can be confusing, they can be frustrating and they’re not something that you’re maybe going to be able to figure out yourself.