Buying a Short Sale – Basics for Buyers

If a home is listed as a Short Sale, does that mean it can close quickly?

If you ‘re in the market for a new home in the Phoenix area you may have already run across the phrase “short sale”. If not, you will soon enough. At a quick glance the term “short sale”, also known as a pre-foreclosure, could understandably be misunderstood to mean that the sale of a particular home can close quickly. But to the contrary, “quick close” and “short sale” are phrases seldom associated with one another.

So what exactly does “short sale” mean?

In the simplest terms the phrase “short sale” refers to when a homeowner is selling their home for less than (short) what they owe the bank who owns the mortgage/s. From the bank”s stand point this means they will be agreeing to take a loss on the loan and as everyone knows convincing a bank that it is in their best interest to take a loss isn’t easy.

With so many homeowners underwater these days, short sales are going to be a part of the Phoenix real estate market for the foreseeable future. For home buyers there are pluses and minuses to this type of purchase.

Considerations when buying a home through short sale.

• – Short sales take considerably longer than other types of home purchases.
  • If you need to be in a new home in the next 30, 60, even 90 days, buying a short sale home may not be the best option for you.
• – Lower chance of a successful close.
  • While the home owner may be willing to sell his home for less than what is owed, their bank may not be. And it can take months to learn if the seller’s bank will accept your offer.
• – In most cases, when buying a short sale, the home is being sold As-Is.
• + Unlike a bank owned home, you can expect to receive a copy of the Seller Property Disclosures (SPDS) and Insurance Claims History Report (CLUE).
• + Short sales that are still occupied can sometimes have the advantage over bank owned homes when it comes to the overall condition of the home.
  • It stands to reason that a homeowner attempting to avoid foreclosure by doing a short sale is probably going to take better care of their home than someone who lost their home to the bank.
• + Do to the nature of short sales there tends to be less demand, think less competition, for them.
  • Buying a short sale doesn’t fit the bill for every home buyer, so if you’ve got time, patience, and are willing to accept the possibility of starting the house hunting process over again if the deal doesn’t go through there are good opportunities to be had in short sales.

What if you’ve been house hunting and you’ve found the perfect home and just have to have it but it is a short sale?

Questions your real estate agent should ask the seller’s agent before making an offer on a short sale:

• Does the homeowner have a hardship?
  • In most cases, a seller has to have a verifiable hard ship in order for their lender to agree to a short sale. Common hardships include; loss of job, medical bills, divorce, or relocation by an employer.

• How many loans does the home owner have?
  • The more loans a seller has on their home when doing a short sale typically the longer the process will be for the simple fact that there are more parties involved that have to agree to the sale.
  • Likewise, the more loans that a seller has on a home the lower the chances of success because there are more parties involved that have to agree to the sale.

• Does the seller’s agent have experience doing short sales?
  • A short sale is not your typical home sale transaction, if the seller’s agent doesn’t have experience with short sales the chance of a successful close decreases.

• Is your offer price close to the market value of the home?
  • If the agreed upon purchase price is well below the realistic market value of the home the chances of a successful close decreases dramatically. The lender will get its own property value assessment and if your offer price is way out of line with the lender’s value they most likely will not agree to the sale.

• Will the seller be submitting all offers to the bank or just one?
  • As a buyer you want the seller to send your offer, and only your offer to the bank for consideration. Some sellers submit every offer they receive to the bank for consideration, iIn some cases the bank may require it, which means your offer will be competing with all the others.

• Is the bank aware the homeowner is doing a short sale?

• Has the short sale package been prepared and/or submitted to the bank?

The answers to the above questions will not guarantee a successful a short sale purchase, there is no way to do that, but they will give you a good indication if one is worth pursuing.

In Short

It is estimated that there are over 11 million homeowners are underwater on their mortgage so it stands to reason that short sales will be around for some time. If you are in the market for a new home there is a very good chance you will come across more than one short sale that catches your eye. If decide to put in an offer on one be sure your real estate agent has experience with the purchase side of a short sale transaction, interview the seller’s agent, and be patient. If it’s worth having, it’s worth waiting for.

If you have any questions feel free to leave a comment below or give me a call at 480-820-0043.

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