You may be wondering about buying a short sale… Over the years you have heard a lot of “stuff” and you’re not sure which parts are true. If you follow the news carefully then it makes sense that you would be totally completely confused about short sales. That’s because just about every time there is a predictable pattern, it changes. Here is what we’re seeing in 2014….
What is a Short Sale?
First, what is a short sale? A “Short Sale” is like a traditional sale except, well, NOT. Bob and Mary are still selling their home, they are using a REALTOR(R) and selling to someone they don’t know. But they owe more on their house than the sales proceeds will cover, and they don’t have the money to pay off the deficit, so they must negotiate with their lender(s) for approval before selling. That’s what makes it a “short sale”. They are “short” the funds needed to pay the mortgage in full.
They may be asking for full or partial debt forgiveness or a note payable for any deficit. Banks agreement to these sales are dependent on the ability of the family to repay the debt, and the circumstances that have changed since the loan was originally approved and internal factors you can’t possibly begin to understand. This process can take several months, and sometimes does not result in a closing.
Considerations:
- How many lenders are involved?
- What is the hardship/ability of the owners to repay?
- Will they be asking for debt forgiveness or a note payable?
- Who is negotiating with the bank and what is their experience level?
- Which bank is it; what is their process and has it been started?
- Banks may not approve sales where there are not 2 brokerages involved, meaning they frown upon dual or designated agency or a listing agent selling their own listing.
It’s important to note that while you can ask all of these questions before you submit an offer, the answers may or may not be reliable. Sometimes there is intentional deception, but often things are just so very convoluted that the people giving you answers simply don’t know the real story, even if they think they do.
The other thing you need to know: Sometimes mid-stream sellers change their minds, and you as the buyer will not know. They could suddenly decide not to cooperate with the bank, leaving this transaction in limbo for all eternity or until you have finally had enough and decide to walk from the transaction (which you can usually do without penalty if the contract is written properly).
Other contract considerations:
- Longer contract periods with floating deadlines, all based on the approval timeline of the bank. You must be able to wait… although in 2012-2013 short sales were getting approved and even closing in 60-90 days, we are seeing an increase in the processing time again. Before entering into a contract like this, buyers should be in a position to wait up to 120 days and be able to move very quickly once approved, even if the sale gets approved much faster than anticipated.
- Because of the above, most of the time, offers that are contingent on a home sale are not accepted.
- Also because of the above, buyers can not “lock in” their mortgage rate. This means they run the risk that if rates increase, they may not be able to afford to pay the contract price.
- Like a traditional sale, this arrangement does usually mean the seller/listing agent will be paying the buyer’s agent, although sometimes they will only pay part of the commission which could mean the buyer is paying for part of it, as well.
- Inspections are usually OK, but buyer can generally not expect any repairs to be done by the sellers; their only choice is to terminate the contract.
- Cash offers are considered favorably by listing agents, but the banks do not usually give any thought to how a buyer is paying for the home, only how much.
- Marketable title is usually conveyed in these situations, giving them an edge over foreclosures in my opinion.
The Good News: On average, short sales sell for 10% below “market rate” for the home. On a $500,000 contract that could be a $50,000 savings, if you’re in a position to wait, these may be worth the risk.
Interested in learning about other types of sales we’re seeing in the marketplace in 2014? Follow this link.
Looking to Purchase a Home in the Dulles Area?
Let’s talk!
Vicky Chrisner
Fieldstone Real Estate
703.669.3142
[email protected]
www.VickyChrisner.com
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