I was asked by a colleague the other day if I had any tips for buyers looking to purchase a short sale. I assist a lot of sellers, but I had never thought of putting together tips from the buyers prospective. Here are my thoughts to provide understanding to potential short sale buyers of the process, as well as tips to successfully buy a short sale home.
What is a short sale?
A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage. A property listed as a short sale does not mean the lender will accept your offer, even if the seller accepts it. The seller needs to have a valid hardship, such as job loss, underemployment, divorce, or death, just to name a few.
As a buyer, you do not need to know the hardship, but you do need to know if the seller’s real estate agent is experienced at negotiating short sales. Inexperienced agents may accept a short sale that is not valid, draw out the process, or may not be able to properly negotiate with the lender. This means a tremendous waste of your time and not getting the home you have your heart set on.
Knowledge is Power
Here’s what you need to do to successfully buy a short sale:
- Hire an experienced Realtor (not just an agent) to represent you -the seller pays your agent’s commission. They should have experience representing buyers for short sales and/or negotiating short sales. This is important so that they know the proper questions to ask the listing agent so that you can determine in advance the likelihood of the transaction closing;
- Be prepared for the wait – figure at least 60-90 days for the lender to approve the deal, and another 30 days to close. In some instances, a short sale can take six months or longer. It all depends on the lender, the lender’s negotiator, and the experience of the listing agent;
- Once the short sale is approved, get at minimum a roof, pest, and home inspection. There is sometimes deferred maintenance (If the seller couldn’t make payments, chances are they could not physically maintain the home) and be prepared to pays the costs of repairs yourself;
- You can request repairs, but the lenders typically say no, choosing in some cases to take the cost of major repairs off the sales price of the home. (Ex: if you are buying a $400,000 home and it needs a new roof that costs $20,000 – some lenders may adjust the sales price to $380,000.)
- Lenders will generally pay for county transfer tax and a natural hazard report – and that’s about it;
- Be prepared to close by the lenders drop dead date.
Short Sale Time Line
There are a lot of variables in how long it takes for a short sale to be approved….here is a general guide:
- Bank acknowledges receipt of complete short sale package — 10 to 30 days.
- Bank orders a BPO and/or an appraisal — 30 to 60 days.
- File is reviewed by lender — 30 to 60 days.
- Negotiator is assigned — 30 to 60 days.
- File is approved or rejected — 30 to 120 days.
Reasons Not to Buy a Short Sale
- Short Sale homes sell at market value. If you’re looking to buy a short sale because you think you’re getting a deal, think again. The lender’s goal is to maximize the value of the asset for their investors;
- Some agents underprice short sales to generate multiple offers. Know the market values in the neighborhoods that you are interested in so that you are not wasting your time bidding on a home that will sell far out of your price range;
- Short sale homes are purchased “as-is.” Unless it’s a huge repair (like a roof or mold) the seller will not pay for repairs or inspections – and even then, it’s highly unlikely.
So Why Even Bother Buying a Short Sale?
In some areas, up to 40% or more of the homes on the market are short sales. If you find the home you love and it’s a short sale – go for it. Just make sure your Realtor asks the listing agent the right questions and does their best to maintain some sort of control over the transaction. (Easier said than done!) And be patient!
The Hagley Group has been successfully representing buyers, sellers, and investors in short sales since 2006. We have hundreds of approvals and a 100% success rate for closing short sales.
We represent short sale sellers in San Ramon, Danville, Dublin, Pleasanton, Livermore, Mountain House, Castro Valley, Tracy, San Leandro, San Lorenzo, Hayward, Fremont, Blackhawk, Ruby Hill, Windemere, Gale Ranch, and Henry Ranch.
The Hagley Group has successfully represented buyers and investors as buyer’s agents in all of Alameda, Contra Costa, and San Joaquin counties.
We represent select buyers, sellers, and investors in all areas of California, including San Francisco, Marin, Monterey, Los Angeles, and Riverside counties just to name a few. When we say select, it all depends on our workload at the time, as well as individual team member experience in the specific city or neighborhood in which we are asked to represent.
The Hagley Group also caters to celebrity clientele in all area of California, including Beverly Hills, Newport Beach, Palm Desert and San Diego.
For more information, contact Cindi Hagley at 925-867-4663 or firstname.lastname@example.org.