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By Tara-Nicholle Nelson | Broker in San Francisco, CA

The 5 Most Common Complaints of Short Sale and REO Buyers (and How to Avoid Them)

Roughly forty percent of the homes for sale on today's market are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed, too!

Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course.

Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.

1.  Run-on (and on, and on) escrows.  When you’re buying a home (or selling one, for that matter), time is absolutely of the essence.  And buyers reasonably expect that the big time suck in real estate is in the house hunting process itself; seems like once you find a home you want to buy and the seller agrees to your price and terms, things should move pretty quickly, right?

Not so much, when it comes to some distressed property sales. I’ve heard tell of the occasional, swiftly-moving escrow on an REO (real estate owned - by the bank). But for the most part, these transactions take anywhere from a few days to a few weeks longer than “regular” sales, because of the extra signatures, supervisor-level approvals and even investor involvement required to seal the deal.  Banks don’t have the same sense of urgency individual home sellers do, and it’s not uncommon for the people who need to sign on the dotted line to be on vacation or scattered across the country, adding days’ or weeks’ worth of time to the escrow.

And short sales are also an entirely different animal when it comes to escrow timelines. While a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months (!) to get the deal closed, after the seller has accepted the contract.

Avoid the drama by: expecting your escrow to run long, and being pleasantly surprised if it doesn’t.  Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost of extending your low interest rate, if rates are rising rapidly during the time you’re waiting for the deal to be done.

2.  Bank won't take lowball offer.  If I had a dollar for every time I’ve received a question from an outraged reader to the effect that a buyer has had their short sale or REO offer rejected on grounds that it was too low,  even though the bank has no other offers, I could buy a foreclosure myself (admittedly, it’d be one of those $150 foreclosures in some blighted town with tax liens and no plumbing, but still).

Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition.  Fact is, many banks would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.

Avoid the drama by:  working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with.  You can waste a lot of time, spin a lot of wheels and lose out on a lot of properties making lowball offer after lowball offer on distressed homes. Sit down with your broker or agent, review the ‘comps’ and make a smart offer that reflects a good value for you, is within your budget and is not bizarrely out of the realm of the fair market value of the property.

3.  Last minute postponements/cancellations.  These transactions have an uncanny way of being delayed at the last minute - or never going through at all, through no fault of the wanna-be buyer. You signed docs yesterday, put your dog in the crate this morning and just hopped in the moving truck, only to get a text from your broker that the deal didn’t close because the escrow company which was selected by the bank flubbed the checkboxes on a single sheet of paper (it happens). Or, you’ve been in contract (with the seller) on a short sale for four months, and the bank refuses the sale entirely because the seller refuses to kick even $1 of their own cash into the deal, despite having a flush savings account.

Avoid the drama by:  staying as flexible as possible with your moving plans as long as possible.  Best practice is to plan on some overlap between the time you can be in your last place and your scheduled move-in date.  Also, if you’re in contract on a short sale, you should take the point of view that you don't have a firm deal until you get the bank’s approval of the transaction. So don’t even think about starting to make moving plans or paying for home inspections and appraisals until you know the bank has greenlit the deal and that the purchase price and terms they’ve approved work for both you and the seller.

4.  The bank’s black box.   Make an offer on a normal home and you’re likely to know what the outcome will be within a few hours or a few days, at the outside. If things take longer because the seller is out of town or some such, the listing agent tells you that, and you at least know what’s going on.

Make an offer on a bank-owned property or a short sale?  It’s a crap shoot - could be days, but could also, easily, be weeks or months before you know what’s going on.  And no amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made.  And that “black box” into which your offer disappears at the benk level is very frustrating.

Avoid the drama by:  continuing your house hunt until you have an answer back.  Maniacally pestering the listing agent for answers or harrassing your buyer’s broker into spending hours on hold with the bank is highly unlikely to get you any insight. (With that said, it does make sense for your agent to check in regularly - sometimes even daily -  with a short sale or REO listing agent to stay updated on any developments with the property and to make sure your offer/transaction stays in the front of their mind.)  

Most of the angst in these situations arises when a buyer feels they passed on properties that would have really worked for them when they pinned their hopes on a distressed home.  You can only control your efforts and activities, not the bank’s.  So, consult with your own broker or agent about staying proactive in viewing and even pursuing other properties until you have a firm “yes” from the bank on your short sale or REO offer.  Until that time, and usually for a short time after you get the bank's approval, you have the right to back out of the transaction if you need to (make sure your broker briefs you on precisely when your right to rescind your offer or exercise contingencies - i.e., bail - will expire).

5.  Double standards. In a “regular” equity sale with no bank involvement, both buyer and seller are obligated to meet various timelines.  Seller has to provide disclosures by X date, open the property to inspections - with utilities on - by Y, and close and move out by Z.  REO and short sale buyers, on the other hand, are often dismayed to find that  even though the bank might take weeks or months to sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check quick-like.

Avoid the drama by: chalking it up to the (admittedly irritating) way things are - the price you pay to buy from the bank.  Realize that working with the bank on the bank’s terms is unavoidable when you buy a distressed property. Then, go into the deal with realistic expectations - including the expectation that the bank will drag its feet, despite expecting you to keep every deadline - and you’ll be less frustrated, and less likely to make poor decisions out of frustration.

Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract.  I’ve seen banks capitalize on buyer delays in returning signatures and removing contingencies to accept higher offers they received in the interim.  Don’t lose your home on a technicality because you assume that the bank’s lackadaisacal timelines apply to you as well.

P.S. - You should follow Trulia and Tara on Facebook, too!


By Michael Arleth,  Thu May 5 2011, 04:43
Tis a good article and very important to inform sellers/buyers up front of many obstacles/delays so to avoid the many frustrations down the line. REO/foreclosures/short sales all sound like a steal (I mean deal) to buyers, but it's not for everyone.
MIKE in Philly
By Kathy Miller,  Thu May 5 2011, 04:48
When the private mortgage company got into the short sale at the very end and decided they wanted $8000 from the seller ( $54,000 house). They agreed to let her pay $100 a month towards the $8000 if she could not come up with the cash. An upside down owner, looking at bankruptcy, had moved in with family, had cooperated on all paperwork, buyer approved and the PMI company gets involved. This was something I did not realize could happen. I thought the PMI company was insurance to insure the first 20% of the mortgage- this caused the sale to cancel and the house will now sit empty without utilities on, probably be vandalized, and the neighbors get to look at a deteriorating yard and house for at least 18 months while the county works through the backlog of homes to get it to the sheriff sale.
By Carl Witzig,  Thu May 5 2011, 04:53
...and, realize the listing agent should now the balance owed, the amount in arrears, any other potential liens (fees, assessments, taxes), the status of the short sale appication by seller- whether the lender has approved the hardship application or not, whether an offer will be the first or a back-up because these are ignored until the first is decided upon, whether knows the lender contact info and how to follow-up. Agents can be notoriusly remiss in knowledge needed to get the job done. There is no industry standard to rely upon, just suggestions and recommendations like Trulia's. With thousands of shorts and REOs, and growing, the rules are very liquid. IMO of course. Others may disagree. Tara's advice invaluable here, as far as it goes.
By John Crowe,  Thu May 5 2011, 04:55
It takes a few parties to accept a short-sale deal: owner of property, lender, possibly second lender, GSE (Fannie/Freddie) and insurer (mortgage variety, like a United Guaranty). Too many agents, particularly on the listing side, do not understand the process and end up frustrating the seller and buyer. Critical to ask penetrating questions of the listing agent should a buyer decide to write an offer. You'll know quickly whether it is a possibility or a lost cause.
By Frank Gleason,  Thu May 5 2011, 05:01
Short Sales and Foreclosures are upper most on the minds of most of my buyers. I have had a few short sale contracts. After 90+ days, it s seems one will fly and the other won't. They all take on their own personalities which make them even more of a challenge to actually get to closing.
We are finding ourselves in a new evolving market. Agents need to keep pace with what the buyers are after, things have changed the past 3 years.
By Lilly Hughes,  Thu May 5 2011, 05:15
And for all of the above 5 reasons, the lenders should be paying us bonuses for getting the buyer through the process instead of trying to make a few extra bucks by cutting our commissions.
By Gabe,  Thu May 5 2011, 05:32
This article is perfect timing for me as I am now in the market for a home. There are many homes for shortsale and foreclosure. The real-estate market has changed.
By Lee Ikilbourn,  Thu May 5 2011, 05:53
I have a 6th to add to the list, not being able to find out who to contact to put a bid in to purchase a home. I have followed several properties for months on Trulia & Realty Trac that are listed as REO/Bank owned and know the home is empty but they no sign in the yard with a agent's name to contact. I have talked with several realitors, even found out who the bank is and the local gov't and can not get any contact information for the person to contact to put a bid into. That's irritating too.
By Lewis,  Thu May 5 2011, 06:07
thanks for the info, this is well said, I am a buyer and was under contract for about 9 months from a short sale after a long wait the home failed inspection and was broken in, and the bank refused to make proper repairs, I paid for inspection and was traveling every day from New York to view homes, now I submitted an offer which was approved by seller, but no response from the bank, it is unfair and it should be laws before the home go in the market both sellers and banks should agree on a price, if a buyer wants to submit a diffrent price it should be at their own risk, but the original price shoul go as plan, now is there any places a buyer can go to submit proposal to law makers or a complaint where they can look into certain real estate parctice.
By David Hussey,  Thu May 5 2011, 06:08
I do a lot of Short Sales and Reo property.And a lot of the Larger banks after four long years ,have got things together.What took weeks in the past now takes days. Great artical can't wait to read one for sellers.
By Mare,  Thu May 5 2011, 06:15
Good article, with excellent remarks from contributors (Witzig, Crowe, Hughes, et alia).
By Reoprofessionalforeclosures,  Thu May 5 2011, 06:18
Tara needs to clearly define the difference between a Shorted property investment of the bank's investor and the bank's owned property REO. For there is distinction in the processing criteria like difference of the Broker Price Opinion and the court ordered price from judicial foreclosure. Therefore, mixing the two types of sales further confuses the buyer and delays the recovery.
By Steve Earnshaw,  Thu May 5 2011, 06:18
Well put, Tara. Short sale listings are not for the inexperienced broker either. I took a short sale listing three months ago and the lender would not pre-qualify the sellers or the house. I contacted them two months later to see if their practice had changed. Yes, they would prequal the seller but not the house without a offer in hand. The sellers became so distrought at the thought of submitting paperwork (the same documents they submitted for a mortgage modifaction a few months prior and were declined) they withdrew their entire listing. I need to mention, they purchased the house 5 years ago at the peak of the market. It is worth half of their investment. Their variable variable rate loan with negative amortization resets July 1. Income is half of what it was due to a disability shortly after origination. A deed in lieu wilmay be a good opption when they receive their default notice. This case was the perfect storm for a short sale. Make sure the sellers have the temperment to go through the process. Unlike buyers who must be patient for a successful deal, sellers have fewer options.
By Delray Carol,  Thu May 5 2011, 06:30
I am buying a short sale (with cash) and we have settled on the price and the closing is scheduled for a few weeks from now. The seller is very upside down in this mortgage and he has at least two loans on the property. When we close, is there anything besides a title search and tiltle insurance that I need to assure that the property is mine free and clear? I keep hearing horror stories from people that it is too dangerous to buy a short sale because someone is going to show up saying I owe them a large sum of money. I know most of the people saying this don't know what they are talking about and are the type to live their life in fear, but want to be certain I have all my bases covered to keep my investment safe. Any suggestions other than a title search and title insurance?
By Dog days afternoon,  Thu May 5 2011, 06:31
Make me laugh. Offered Wells Fargo a contract. Showed available funds in cash on 4 different occasions. They did not understand that I was not getting a mortgage and was paying cash. They even asked if I wanted a mortgage. Waited 9 months for bank to tell me that they wanted $37,000 more then the listing price of the property net which was about $52,000 gross more then the asking price they advertised. Property was vacant for over 300 days when they filed foreclosure docs. Then we waited the nine months. Now it has been another 6 months and the property is still vacant. I guess they feel the roof won't leak, the plumbing won't freeze and the house is appreciating in value. Spoke with the attornies and seems the foreclosure is just sitting and the bank is taking no action. That's our tax dollars at work. How do we get the banks moving. Who do I talk to at Wells to get this one done?
By Gobuffaloes,  Thu May 5 2011, 06:45
I hope David is correct in his assessment that larger bankers are getting it together. It seems to me with the large number of REO"s that the banks would be motivated to put through a short sale and avoid a huge discount on the property. The market being saturated with REO and short sale properties I would assume a short sale saves them money in the long run. Am I understanding this correctly?
By Laura Nelson,  Thu May 5 2011, 06:58
This article is important because it will show buyers realistic expectations when dealing with these transactions. Know what you're getting into in the very beginning and there will be no unpleasant surprises!
By Heather Feldman,  Thu May 5 2011, 07:00
In our area, another big challenge for me as a buyer's agent is to get the listing agents to call back on REO's. Call backs can take from several days to several weeks. They sometimes use agents from other areas and they don't always have access instructions on the listing, no Supra keybox, and no contractors box code. They don't update their listings saying " verbally accepted contract, awaitng bank signature" (can take some time to get an actual signature), nor do they update to pending. Fun times. How do you tell a buyer, "I know it shows available, but it is not", 3 weeks after the agent - after finally calling back - says it is pending. Many times they are not even members of our board. Ridiculous.
By BMP,  Thu May 5 2011, 07:01
I am in short-sale turmoil right now myself. As a seller. My buyer has now had the sales offer on the table for 30+ days and the MI company is backed up. I MYSELF call the MI company daily. Tara is right, there is no amount of pleading anyone can do to speed things up. I just hope and pray my buyer doesn't get frustrated and bail. Short sales are not for the wishy washy or faint of heart. On the buyer or seller end. It takes a very dedicated Listing Agent and seller to tag-team these things to keep them going. I'm trying my best to keep up a cheerful and friendly demeanor when speaking to reps at the MI company who tell me day after day after week, "no, no one has been assigned to your file yet". Anyway, great article, I wish more buyers knew what to expect and as you said, managed expectations. Send good thoughts my way for an approved transaction!
By Gabe Orozco,  Thu May 5 2011, 07:04
This is why you avoid REO/Short Sales altogether and "find" traditional sales, If you look and prospect for them you'll find them... Happy prospecting..
By Wuziright,  Thu May 5 2011, 07:12
Great article Tara, I have seen where banks will will reduce their price 84-87% of the appraise value in short sale. ENJOY!
By Mary Ann Flood,  Thu May 5 2011, 07:41
Getting a buyer to not get frustrated is a problem. They know logically that they are not in the driver's seat and that the bank calls all the shots. They also know that the listing agent is the one that will be able to update if the bank is communicating. Knowing and feeling are two different things. The rules have totally changed and many times the purchase is a chore. The more buyers read from the professionals in the field talking about the purchase issues, the more they will go into a transaction expecting obstacles and hopefully dealing with them better.
By Cherrissmith,  Thu May 5 2011, 07:41
this is so true in looking for houses found a house went through all the paper work was approved by bank every thing looked good, but the bank wanted more for the house then it was listed never thought that could happened but it did is that legal how could they do that if it,s not listed for that price isn,t that false advertising !!!!!!!!!!!!!!!!. Very unhappy about that still looking pray for the housing market and the banks that own them.
By Karen Pannell,  Thu May 5 2011, 07:46
Once again, you are right on the money. All of this "drama" is to be expected when you deal with the "black box". thanks for outlining the process in an understandable way for the consumer.
By Neil,  Thu May 5 2011, 07:50
This is a very helpful article. I just recently purchased a second home that was a foreclosure in Las Cruces, NM. I had to research property long distance and used the Trulia and HomePath sites almost exclusively. Long story short, we were able to locate and put in an offer over one weekend in the city. We got a great deal on a 5 year old home in almost turn key condition. I think that all of the research along with using the right realtor and lender made all of the difference. From first offer to close in 45 days made all of the preparation pay off.
By Gen Neuman,  Thu May 5 2011, 08:01
@Bridgette- best of wishes to your endeavor!
@Gabe Orozco- sad that you are advising people to shy away from something that requires a bit of hard work and faith; shows what sort of effort you are willing to put into your clients..

On another note here; a short sale (I strongly think) should be renamed to "long, nerve-wracking, emotional, coupon sale".

Finding an experienced Realtor is the main key here, don't sign a buyers contract unless you TRUST TRUST TRUST your Realtor, or you may end up with someone like Gabe, who is unwilling to work hard to help a client pursue their dreams. An honest, trust-worthy, reliable, communicative Realtor is the best thing you could ever have going for you in a situation such as a short sale.

Shop around for an agent!

After finding someone who will work towards Your goals, help you to understand what is going on & Why, what steps are next, what docs are needed... you will be in good hands.

Also w a short sale, as buyers, take a lot of deep breaths, always expect the extreme worst. Become pleasantly surprised when the best happens!
By Stan Brody,  Thu May 5 2011, 08:02
Tara... your comment on lender's needing to garner the best return for their investor's from these transactions is not exactly correct... the plain FACT is that the loan loss guarantees contained in the buy-sell agreements for the sale of seized banks guarantees just that, a profit on the sale of real estate assets... regardless of the price accepted... I had a recent transaction, where IndyMac refused to accept a $350,000 short sale (loan balance was $650,000ish)... then sold the home at the trustees sale for $240,000... based on the loan loss guaranty calculations, OneWest (IndyMac successor) "earned" $131,000 net from the FDIC in loan loss payment...
By Don Shelby,  Thu May 5 2011, 08:07
Good article. However mixing the two (short sale and REO) into the same category is wrong. It is like comparing peanut butter and jelly. A short sale you are dealing with a loss mitigater at a bank or service company whose job is to get the barrower to make good on their dept and the extent of their tanning in dealing with short sales is to learn how to say “The file is in review” until the foreclosure process is completed, where with an REO you are dealing with a completely different company, being handled by an asset management company (with no surprise the majority of them now being handled by Fannie-mae or Freddie-mac, another means of a bail-out) that has the job of liquidating the asset within the parameters of their authority. Short sales have become an unfortunate joke, where as REO properties have become one of the only few means that home buyers can realize a short term positive equity position.
By Pat and Steve Pribisko,  Thu May 5 2011, 08:08
Great post. When we represent a buyer in a short sale, we provide an escape clause for the buyer to be able to walk away after a certain time period if they choose to do so.
By Aaron Schreiner,  Thu May 5 2011, 08:33
If you know that you want purchase a short sale make sure that at least one of the agents in the deal (listing or buyer rep) is a pro in that process. It makes a big a difference to have someone working on the process that really knows all about it.
By Ryan Anderson,  Thu May 5 2011, 08:50
Like Aaron said, it is almost a waste of time to go after REO/distressed property unless you have seasoned agents working the deal. I have spent more time, only to be dissappointed by an inspection or lack of communication from the bank than I would care to tell. Great article, brought back some not-so great memories.
By J. Mario Preza, CRB, CDPE,  Thu May 5 2011, 09:21
Real estate ain't what it used to be. Another way to see it is -- paradigm shift.
By Kathleen (Kat) Becker,  Thu May 5 2011, 09:22
Great information! I hope sellers read this!
By Robert Lee,  Thu May 5 2011, 09:25
Great read, excellent articel!
By Dawn Marie,  Thu May 5 2011, 09:31
Well I would like to know when I make a CASH OFFER on a property here in SD County, most of them in Oceanside, why then a few months later I see that the home was sold for less than my cash offer?? In the last year, 3 out of 4 times this happened to me (and my Realtor) the listing agent was Battiata Realty.
I also gave a bid on a home for auction, CASH SALE again, came in 2nd, but after 1 month the 1st place guy walked away. No one ever called me, and to my surprise that property stayed on the market for over a year after that.
Very interesting. Full disclosure, I was an originator, banker, and also an underwriter for FNMA for many years.....boy, things are sure not what the used to be.....
I would love to hear any and all takes on these situations.
By Veronica,  Thu May 5 2011, 09:37
When we know that a neighbor is in a short sale , and we are interested in their house why can't we deal with the bank ourselves and make an offer to the bank directly without all the in betweens you have to pay for,
When we purchased our house in March 1965 we new the owner needed to sell, we made him an offer on the sunday. tuesday we meet with the bank and our lawyer assumed his loan .paid him his money and assumed his taxes our lawyer file the change of ownership and for a fee of $25.00 the house was ours in our name on the wednesday, no inbetween people to pay. by Ronnie
By Sandy,  Thu May 5 2011, 09:41
We bid $100 over list price on a short sale home in Worthington, Ohio. It had been on the market for 3 months, each month dropping by $10,000. The owner accepted & we waited 6 weeks to get acceptance back from the bank. Finally the listing agent called ours to say the house went to Sheriff's sale 2 weeks earlier and the house sold for $10,000 below the list price, which would be $10,100 below what we offered. Turns out the bank bought it back in the auction. They were the only bidder. We moved on to a HUD home in Columbus, which was a much better experience as we got in during the initial days when preference is given to an actual home owner. A week after we closed, the short sale property went back on the market for $104,000. What sense did this make? No wonder the banks are so screwed up.
By K. Lewis,  Thu May 5 2011, 09:43
Short sales are a nightmare. We've been looking for a house in small unincorporated town near by. Almost all the listings in our price range are short sales. We've been looking out there for 4 years (seriously).

We've been involved in three short sales so far and all of them have fallen thru. The first had undisclosed serious roof issues. The second had a $16K tax lein that the seller and agent KNEW about yet waited for us to offer on it and had it come up in title. Getting our $5K good faith deposit back from that listing broker (Dennis Grimes) was a total joke-took a month and lots of threats of suing him before we got it back even tho the house at this time was out of contract. I never did get a clear answer as to whether the title was ever cleared on that house and it ended up going to auction anyway.

The third short sale was on a house we really loved, but the bank (ING) never did get back to us in writing that our offer was actually accepted. We only got a verbal from them, yet I was expected to pay $2K in inspection costs on a "verbal"? Talk about unprofessional! That house ended up going back to the bank at auction for only $2100 over what our offer was. I will be adding ING to my growing list of banks who will not see ANY of my business ever. I believe that they KNEW all along that the house would go to foreclosure and were just playing us. The right hand didn't know what the left was doing.

We later came to realize through an article I read on the San Diego Business Journal that banks are getting kick-backs thru the Fed and stand to make more on foreclosures and are purposely witholding property from potental buyers for this reason. ING would not have batted an eye at us blindly spending $2K of our hard earned money just to pull the rug out from under us at the last minute which is exactly what they did anyway! Thank God we didn't lose that money....

The banks have our bail-out money in the billions now and there is little if any motivation to work with or negotiate with buyers...at least that has been our experience. My advice is to stay away from short sales. They are nightmares and to say they are "frustrating" is an understatement - mostly due to the banks and their insatiable greed. When I think of all the hard work my agent, the listing agent and all the others involved with our loan put in to all this it almost makes me ill because it was all for nothing. They all deserve a medal for their efforts.
By Truliaaddictinarizona,  Thu May 5 2011, 10:21
My family just bought a short sale property in our neighborhood. We put in our offer last October and it was just finalized this week. All parties we worked with, from the listing agency to our own agent to the sellers and even the bank were all doing what they were supposed to, it just took a lot of time because of all the legal avenues that needed to be satisfied. I will say that having a professional agent working for us who kept track weekly and even daily of the progress helped a lot. In the end, we got a 2007 home that had sold for over $200,000 in 2007 at a vastly reduced price of $48,000. We are delighted with being able to buy a property that we had never dreamed of being able to afford previously. Being able to wait indefinitely definitely helped, but It's also true that when the bank finally declares it, you have to be able to run around getting your loan and other legal papers, in addition to the payment check almost IMMEDIATELY. Also, buying a newer property helps eliminate unforeseen delays, as goodness knows what kind of problems the older units will reveal.
By Lauree Naval,  Thu May 5 2011, 10:49
Short Sales require patience but generally do close. It's a hurry up and wait situation that gets you the home of your dreams. Buying a home is never a simple or easy process and short sales are as challenging and complex as it gets. If the home is worth it, make the offer and work it!
By April Ortiz,  Thu May 5 2011, 10:57
Great article for Buyers. Having an experienced agent is a must for buyers and sellers navigating the distressed property market. These deals are a different breed with lots of moving parts. Your agent must be extremely organized and know all the right questions to ask, who to ask, and when to ask them.
By Rmadej,  Thu May 5 2011, 11:11
The article is good...Unfortunately it a sad commentary because most of the advice is to accept this behavior and expect it. The only useful piece of advice is to keep looking after you have made the offer (#4)...it is the only way the consumer has any control. maybe if people start walking away form some of these offers because they have found something else while the banks diddle away their time...they will be more responsive in the future...
By Barb Merrill,  Thu May 5 2011, 11:43
Great article! Thanks for telling it like it is!
By Julia St. Marie,  Thu May 5 2011, 11:46
Excellent article...
RE: #2: FMV-Fair Market Value....the key word is "fair."
I find if a buyer is "fair" they can get the property.
Fair also means....Seller pays for their closing costs and buyer pays for their's.
Buyers whom request Seller to pay for buyer's closing cost are taking themselves on step further away from getting the home that they want.
Thanks all and have a great day!
Julia at Realty ONE :)
By Tony,  Thu May 5 2011, 12:03
Very good advice! I recently was involved in both a short sale house and a REO, and everything that was described here happened in both instances. If I had been better advised by reading this article before everything went wrong, I am sure that it would have helped me deal with the emergencies that took place. Going with a banks title company I think is a very big mistake. I think if you have the option of choosing the title company yourself or going with the one that the bank wants to use, you would be better served by paying the extra cost and getting your own title company who is going to stay on top of everything for you.
By Antoine Pirson,  Thu May 5 2011, 12:08
Where is the political power of the NAR ( and or CAR) in my case to make the short sales a "regualr" sale. We know where the politcal power of the banks is, no? Here is what banks hide behind. The will tell you that they need an answer from the "investors" to agree to the offer on the short sale. Well how much sausage (Italien or not) is that? Let's see. If it becomes an REO, how much agreement did they get from the investors then? Zero , zip, nada. So BANKS, stop hiding behind that riciculous lie and apporve the short sale within 7 days. IF there are any banks reading this, I can help you do that.
Last week I had an "apporved" short sales and the bank still foreclosed. Gone everything I worked on in the past 5 months or so. Nice going banks. BTW, they sold at foreclosure for 50K LESS.
By Summer,  Thu May 5 2011, 12:25
Excellent article I purchased a SS (my first home) and its true you can close within two months or 6. It was a hard road even at the end the bank screwed up the wired money for escrow to the title company causing me to wait a weekend before getting the keys to my home after signing all my close papers. Also because of court dates and holidays I almost went into paying extra money for the rate lock fee. I had three close dates in December, one in January and two in February closing on the last schedueled date, thank God, but it was worth the wait. I had my bags packed only to have to change the date for the movers because of the escrow wire. My heart was heavy during this time because I was in a tough situation with a rental property. Many people told me their SS stories some happened in 3 weeks others much longer. Wishing I had this article, yes, somehow I was thrust into paying for the appraisal before the bank approved the sale. By the way the seller filed bankruptcy on a Monday in December and I was to close on Friday,which also prolonged things.
By BLS,  Thu May 5 2011, 12:31
But once you make the offer, aren't you binded by it until the bank repplies or can you walk away anytime? very confusing time, who can answer my question
By Ardell Dellaloggia,  Thu May 5 2011, 12:45
Here's an exercise I use with my clients. We calculate the savings of buying this Bank-Owned or Short Sale home vs a "regular" sale in the same neighborhood. Let's say it's $20,000 from the buyer's perspective, after we review the comps. Then every time something annoying happens, we weigh "the problems" against saving $20,000. Most times being patient and flexible stacks up very well against the savings. This works best for clients who could not even afford to live in that neighborhood, if they had to buy a home at a "regular" price vs a short sale or bank-owned price.
By Teshua2,  Thu May 5 2011, 13:53
We were offered a 'short-sale' option to avoid foreclosure, but the appraisal stated they'd at least like to get $91K for our house even though it's valued at $146K just last year when we bought it, and tax assessed at $120K.
How do these appraisers possibly come to such a low figure when the house hasn't changed in one year?
By Alex Fernandez, Realtor ABR,  Thu May 5 2011, 15:09
In reference to a short sale, It would be ideal to have an experienced listing agent who can work with the distressed owner in keeping the home in the best condition to invite as many prospective buyers as possible. Hopefully, to receive a good offer soon that could be accepted by the bank/s. Then, to continue keeping the home in the same, or better shape, from the time of the ratified contract to closing. Do not forget to keep all utilities connected for the final walk-through. In the mean time the listing agent needs to make sure the foreclosure department, or the sheriff, will not be actioning the home before the short sale goes to closing. It is important to explain the owner the benefits to do a short sale vs let it go in a foreclosure process. Many times they don't know. The selling agent needs to explain the buyers they are getting into a long (usually) process, to be patient, to expect the unexpected like the seller's bank is asking for more money or the second lien holder does not want to negotiate, that the home is sold in as is conditions most of the times, and to make sure to not change anything in his/her loan application like new debts, etc. unless it's cash only. Other factors we don't have much control about it is the BPO. Is this BPO based on reality? If you have the basis to disagree, you know you can request a second BPO. Let's cross fingers and think possitive.......
By Kirk Knight - REALTOR,  Thu May 5 2011, 15:22
for Antoine Pirson "Where is the political power of the NAR ( and or CAR) in my case to make the short sales a "regular" sale"

Antoine, I was in Sacramento yesterday speaking with California Association of Realtors elected officers about how we can literally change the business model for Realtors working short sales. I proposed a solution that benefits loan services, sellers, buyers, investors, communities and Realtors. If you are a member of C.A.R. I invite your emails and interest in supporting this change, I will respond with further information you can take to your local association.

We have to assert ECONOMIC POWER not political power. Banks respond to economic forces quickly but buy legislators for political power to delay changes that aren't to their favor.

The key distinction is that rather than using Equator, this would be a system owned by CAR (or NAR). Rather than Realtors begging banks we literally are treated as valuable members of the team and PAID UP FRONT for our work that gathers verified fianancial information needed by loan servicer/investor to make decisions. This is standard HAFA documentation. It will become a Standard of Care and E&O issue to use this system for every short sale.

Repeatedly I have had to deal with incompetence at the loan servicer and their inability to hire management, design a process, compensate employees for retention, and engineer reliable systems. There is no reason a short sale should add more than 30 days to a normal process.
By Mike Harding,  Thu May 5 2011, 15:23
Great article, very helpful. I aways try to tell my clients as much as possible going in so they can no what to expect.
By Ct,  Thu May 5 2011, 16:18
We lucked out big time on a short sale we bought...35 day escrow with only one hitch - the bank backed out very last minute on their commitment to provide the one year major home systems insurance . But, both the seller's realtor and our realtor split the cost of the policy from their own pockets to keep things running smoothly and on time and to avoid any bad feelings....it wasn't a lot of money but it was a very last minute surprise that could have really screwed up the escrow and title finales. These were two good realtors who knew that penny pinching would only mean bad press in the long run. Good job, guys...you were true professionals.
By Christine Mooney,  Thu May 5 2011, 16:28
A lot of words to say very little.
By Ct,  Thu May 5 2011, 16:35
How did we do our short sale purchase?
We assessed the real value of the property using our long esxperience looking at homes all over the area, comparing the homes that sold in the neighborhood we were looking in by features and lot size and condition and neighborhood, and then evaluated what it would take to get a bank to let a FHA 3.5% down first time homebuyer win the bidding.
We went above asking pricce by quite a bit but our eventuall purchase price was far below the real value of the home. We moved in with equity already established by this anemic market. The seller was better off and we got our dream home.
The bank had low balled the short sale asking price to generate a bidding war - we had seen this all over our market. This was the second time they did this but the previous deal fell through because it would not be supported by the buyer's loaning institution. We worked with our realtor, the seller, and used our own judgement of what was a good deal to us.
We are very happy. Started to make offers on the property on December 12th, signed the contract on December 22 or so, and closed escrow and took possession of the home on January 29th. Our 2009 purchase price was $70,000 less than the property sold for in 2002 and $300,000 less than it sold for in late 2007. We have a 30 year fixed rate loan at 5%. We are proof that short sales work - but they do grind on the nerves a bit.
By Aware Buyer,  Thu May 5 2011, 20:49
another source of frustration is having a deposit tied up, with no end in sight .. a deposit one may never recover, if the seller is an out of state deadbeat who has abandoned the property, who is unable to serve for court process, and furthermore mad at the whole world and stops signing anything after being screwed around by the mortgage bank .. many brokers in SoCal, advise buyers they must make a 3% EM deposit even in short sale, do not do it, more like a 1% deposit, if that .. sellers got themselves in this mess out of greed and stupidity
By Janean,  Thu May 5 2011, 20:58
Re: Working directly with the bank on a short sale. We also are looking into purchasing a short sale home with CASH. We have tried to steer clear of all Short Sale properties and viewed may homes, but we were drawn to two and I fell in love with one of them. And wouldn't you know it, they were both Short Sales. We kept looking with no luck. So we bid on my favorite due to the fact the sellers agent stated in written form to our agent that the process would be speedy. The bank and sellers are very motivated at this stage. The house had been on the market for almost a year. With the fact that we could pay cash would also be a positive point. Someone got in before we could submit our bid. It fell through. And another bid came through and we submitted our bid as a back-up bid and waited to see if a counter would be submitted. No counter but the bank countered. The bank raised the price $85,000. Slick bank move #1, So we went in at $5000 over the asking price and we felt pretty good about it. Oh, but it gets even better. Our Realtor recently informed us that the two key Managers handling the property are no longer employed by them... Yes, that's right, the only two people that could get this sale completed up and QUIT, and of course neither one bothered to leave any notes or instruction for the replacements. So now we are looking at an estimated 90 days, and that's being optimistic because the entire process must be started from the beginning now, but, not until they have assigned or hired someone to handle the property. That may take an additional 30 to 60 days alone. It's CRAZY, and so very disappointing. The entire process is unacceptable, unproductive and disrespectful in so many ways. It truly feels like you are caught up in a poorly managed scam.

We have since found out that the bank is the very same bank we have our funds in for the purchase. But I have been told that it really wont make any difference, but I cant help but feel it might. Is there a reason why we couldn't go to the bank and present them with a bid and an option to work out a win/win transaction? We have Cash, we know what house we want and the Seller has already Accepted our previous bid amount.

Are there any regulations that would keep us from personally handling this ourselves? We would like to do them a favor and take this property off their hands. Sounds simple enough, right? This isn't our first home purchase so if we could, we would like to take it to the next phase ourselves.

Kudos to you Kirk!
You are absolutely right, the Short Sale process should be similar or equal to a standard Active home sale. Actually, it should be just what it's called, a "Short Sale" with some perks to stimulate interest, for instance a 14 day or less escrow time line on Cash sales and bonuses for agents who keep it all on track. The banks are already leaving vacant homes scattered throughout neighborhoods everywhere, they are going to end up with structures that aren't worth living in or investing in while bringing the comps down and affecting everyone else in the neighborhood. Making home selling and buying benefit to buyers as well as sellers could possibly get the banks more $ on these properties if they streamlined the process. Simple! Yes, the process must be reworked... It wouldn't be hard to do. Kirk, it's great to see that something is in the works to simplify. Don't give up! Wish there was something we could do to help.

I hate to say it but we may switch gears and look into FSBO properties. We've even considered just knocking on doors and politely talking with the owners and let them know we are interested in their home and was wondering if they have thought about selling it. Bold I know, but neither one has been scratched off our list of options yet.

Great responses and info from everyone above, they got me thinking. Thank You!

By Gabriel,  Fri May 6 2011, 01:51
My case is different. A certain person I will call him the first buyer gave an offer to the Bank. It took the Bank 4 month to come backe to him (also to the seller etc) with the aproval, but one week before this guy had enough of the waiting, and walked out of the deal. So now the selling agent put it back on the market with the bank's aproval price, and wrote in the Add:"aproved by the Bank". when I came in they told me I have to give the offer within few days, I did, I gave 10.000$ downpayment and prove of cash. And I was hoping for a quick deal. After not hearing from the agent for 2 weeks I asked are thing moving?? the answer was a long, well..... after another 2 weeks had passed, I was sure something is wrong. Well what turned out to be is, that the Bank aproval was only valid for the frist buyer not for me or any one els (this the seller realtor was not aware of, and of course my agent nither.) So now I am waiting for over 2 month, things are moving but now the Bank wants all the HOA Taxes etc paid by me and this for the last 6 month, the seller attorney is now negotiating with the bank for a compromise, I am interested to see how muc over the original buying price all this will cost me???
By Steve Morgan - (302) 541-5363,  Fri May 6 2011, 05:51
All buyers paying cash don't have to worry like a buyer needing and wanting to finance the purchase. Working with the right mortgage professional in dealing with floating verse locking at rate that might expire. If financing have all your ducks in a row so when the approval come over! Saves time, money and you control getting the best loan program.

Steve Morgan
Fairfax Mortgage Investments
By Betty Stroll,  Fri May 6 2011, 08:41
Great article. I know a few buyers who feel it is their right to steal the property, I do the comps on the parcel. They still low ball the offers. They get upset with me when they cant secure the home. mmmm...
By Brian Petrelli,  Fri May 6 2011, 11:11
Great post. So many buyers watch too much TV.
By Rose,  Fri May 6 2011, 12:35
After having the highest offer, and an accepted offer from the seller I waited over 13 months only to have the bank come back with a ridiculously high counter offer based on a nonsense BPO of a better area a few blocks away.
I finally gave up and withdrew my offer in disgust.
But I kept looking. I just closed yesterday on a short sale, that was listed by an experienced broker who was working with an experienced attorney. The attorney negotiates with the banks to get the short sale done. I could not believe I was able to sit at a closing table only 6 weeks after signing the P&S.
Though around here short sales and foreclosures are not habitable, they all need $100,000+ in renovations. Still I am way ahead of the game and get to oversee a complete renovation to my spec's and not buy some other guys cheap short cuts and cosmetic fixes.
It's a 3 family in Providence, RI, so I'll be able to have a good rental income to cover the costs once the rehab is complete.
Moral of the story - have a good agent who's working with a good attorney who has experience handling short sales.
By Aware Buyer,  Fri May 6 2011, 14:17
Cash on a SS, does not mean that much, nor does even being able to close in a few days with Cash .. Sorry about the reality of this .. Banks regularly pull the rug out just before closing, when an offer of a paltry $5K higher comes in, contigent to loan approval which could also fall throug for various factors such as low appraisal, and last minute debt ratio problems, or the buyer gets cold feet .. pre loan approval means little to nothing .. the CA SS adendum offers little protection for the buyer, in enforcing a contract, nor the return of EM Deposti, since the seller must sign off, which at times they will not cooperate and the only remedy is to take them to small claims, with an uneforceable judgement in many instances .. keep your EM Deposit as low as possible, not over $1K .. the State should enact regulations setting the max EM deposit on SS's at $500 dollars ..rmember that Escrow Companies at the least little fuss, can legally eat up your deposit with their in house atty .. also, the RE types are always trying to convince buyers to go in at very close to Market Value (anything for a comission) .. no way paying retail in the still high SoCal market, when the economy continues to tank .. all of these RE types continue with the Mantra of buy now, before an upswing in prices or interests rates, which will only result in fewer buyers and lower prices .. also, do not move funds into escrow, before being in physcial possession of a signed contract by the bank with all of the appropriate figures in black and white .. btw, I'm a Cash buyer, who has been in escrows on short sales
By Timothy M. Garrity,  Fri May 6 2011, 15:01
Great analysis.

By Aware Buyer,  Fri May 6 2011, 17:50
Double Escrows on Short Sales, being sold out by either buyer's or seller' s RE Agents .. In Cal this does occur..at times they will utilize the same escrow company or go to another one down the street and remain stealth..this can occur to a buyer who has opened escrow first, if a better offer comes in .. remember many owners are deadbeats so sueing for breach of contract could be futile .. also, the standard CAR contract stipulates an arbitration clause with a small Cap on liquidated damages .. all of the brokers I know claim that a client must initial the liquidated damgaes clause, otherwise they will not process the sales agreement .. the double escrow situation is unethical on it's face, but supposedly falls into a vaque area of the law .. even in Arbitration, there can be substantial legal fees .. as a Buyer on Short Sales, the entire deck is stacked against you .. one side of the double escrow can close, and your deposit will be dangling in thin air .. all of these Bokers who claim to be experts on Short Sales usually only protect their commissions and there is a lot they will not tell .. DUE DILLIGENCE beyond belief is a must for the buyer
By Carolyn Sims,  Sat May 7 2011, 11:23
Thank you for helping us inform our clients. I close many short sales and REOs and unfortunately a client thinks it is my fault that things don't go as quickly as possible. The obstacles are there and we need to keep informing the public.
By Neverends,  Sat May 7 2011, 22:42
What a joke...
If I see a shortsale it almost always needs a considerable amount of work. If you buy a house most likely the owners could not afford to maintain it or knew they were losing it and trashed it.
The savings almost always is more than the headache of having to put the work into it or updating it.
By Helene Fox,  Sun May 8 2011, 15:39
I am not even looking at short sales or foreclosure properties to support the many homeowners who have lost their homes in Hawaii and nationwide due to denied loan modifications. Hawaii has just passed a bill for mandatory mediation but I do not want to participate in or in any way facilitate lenders ripping families from their homes because they ask for help through a loan modification where less than 6% of applicants are actually receiving. Lenders have more incentive to foreclose than to modify loans and have ruined many peoples lives. If we boycott buying foreclosure properties perhaps lenders will get the message and start approving modifications and begin negotiating so families can stay in their homes they work hard for. Mahalo everyone.
By George Lewman,  Mon May 9 2011, 09:38
Good article and generally correct in your comments. Patience is the key to these transactions and they can and do blow up at the last minute. Pricing of distressed properties when done against the neighborhood comparables very seldom works. The amount of deferred maintenance and hidden issues (frozen plumbing here is often the culprit) and hiding behind AS-IS selling terms gives the loan servicer and end investor the belief that their house is as valuable as the pristinely maintained property next door. I look at 100's of these yearly and it is generally never the case. My (the buyer's) advantage in the current market is that 40% of the houses are the competition.
Excellent post, Tara! Very well written and remarkably accurate. Nothing was missed, or... mis-represented, like normally the media would do.
Excellent post, Tara! Very well written and remarkably accurate. Nothing was missed, or... mis-represented, like normally the media would do.
By Gary Byers - REALTOR®,  Tue May 10 2011, 07:15
Are short sale & foreclosure properties are a great bargain?
The answer is absolutely, positively, MAYBE!

The problem is that getting through the transaction can very often make that perceived bargain a very unappealing and undesirable home to purchase for buyers who can not afford to weather the obstacles often encountered during the transaction. If you do not understand the process and have an experienced, knowledgeable professional helping guide the way, that great deal could become a disaster. Never mind the fact that (contrary to public perception) the banks do not just give these homes away to a low ball offer for the sake of being rid of them.

Thank you for this article, it clearly articulates what I find myself explaining to virtually every buyer I meet. It seems the general public is grossly misinformed by all the bad and misleading information being broadcast on TV and other press or media. Now I can say read this, then lets talk....
By Kathy Weber (951) 551-7587,  Wed May 11 2011, 02:59
Great Blog Tara....as always, full of useful and insightful info.
By Roberta Golub,  Wed May 11 2011, 09:56
This is an excellent post! Great to pass along to my buyers. They just have a hard time getting it!
By Jan Milstead,  Wed May 11 2011, 11:04
Great article Tara !
By Get Credit Healthy,  Thu May 12 2011, 11:23
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By Clair Funk,  Mon May 16 2011, 14:13
Hey Tara - I always find your articles to be both informative and very interesting, and sometimes even humors. You did not disappoint on this one. You are so right in that buyers think that finding the home is the longest part of house hunting; if their going for a short sale it's only the beginning. It becomes even that much more frustrating as a REALTOR when your opposing agent is less than informative or forthcoming with updates. It makes us all look bad. Another article all together - Again, great job on this one!
By Fred Carver,  Thu May 19 2011, 07:40
Canadians are Buying Short Sales and Luxury Real Estate as a second home for holidays or investment. Are you talking to a Canadian Realtor? I'm a 40 year veteran and live and sell real estate in Victoria, BC Canada. I'm a regular blogger on Active Rain, search for me Fred Carver. Email me, lets post lists on each others Web site and Blogs. Many Victorians are Buying in the USA, as many homes in USA are a bargin compared to here with the average home here selling at or near $600,000
By Maria Falu,  Thu May 19 2011, 16:06
It really takes a lot of patience especially when explaining the benefits and pitfalls. Its best to be honest and forward with buyers regarding Foreclosures, REO's and Short Sales. Also, you have to hope you are dealing with a listing agent who is on their game and on top of their sellers and the bank to ensure everything goes smoothly and all information the bank is requesting is submitted and done so on top to avoid any unnecessary denials or delays
By Tish,  Fri May 20 2011, 07:30
This article really gave me something to think about. I'm looking to buy and being a single mom, I don't have the luxury of buying the house of my dreams. I just want a good solid home at a cost I can afford. I admit to being all starry eyed over the REOs and foreclosures online. I'm not looking to gouge anyone, but it would be great to be able to afford a new living room set after we move! The article and your comments here gave much needed insight into the hidden side of the market. Thanks to you, my feet are once again firmly planted on terra firma. Blessings~
By Gerard J. Carney,  Sat May 21 2011, 11:29
When dealing with any bank always count your fingers after every hand shake! Leave the least amount of escrow as possible, none is even. If you are offering the asking it may be accepted, but start with asking, this should be what the Realtor for the seller says that the Property comes to in a normal CMA.. That's right, normal value, you see selling at normal value today most times is still less than what is owed on the home. Prices in the last 4 years have brought prices down by as much as 30-35 percent. most loans were for 80%, do the math.
So make the offer without escrow at first, this money would only be tied up for months without any decision. Word the offer as follows escrow of x amount to be made upon acceptance from the financial institution!
By Carmen Brodeur- Top 1% Realtor,  Mon May 23 2011, 17:32
Short sales often leave buyers frustrated and empty handed. Foreclosures can be less frustrating but they have their own pitfalls too. Nothing is simple these days in real estate. You need an educated, experienced agent to lead you through the maze.
By Bea Barnes, Tess Waters,  Tue May 24 2011, 00:24
Great article! Short sales are so unpredictable you have no control over the process, I recommend short sales for people that have a lot of time on their hands, short sales are good deals, but the process will leave you stressed out and dissappointed! I have had the most success with the Bank owned properties for my clients, I recently got one of my clients a $10,000 reduction off the listed price, plus closing cost! On a nice newer home! My clients were very happy, and i was happy they were happy! What a win/win!
By Jennifer Ratcliff,  Wed May 25 2011, 20:13
Excellent article.....always expect the unexpected with these. I had one that had tenants in it that wouldn't move therefore ruined the deal for my buyers bc the renters would not move for the home to close. Very odd situation.
By Adam A. Suid,  Fri May 27 2011, 10:52
This is A Superb Article! Weather you are in the Industry or are the buyer or seller. In my opinion we will See More of them come down the Pipeline and the more familiar we are with the process the better opportunities we have Have. For the Next 3 to 6 years Inventory will consist of these and soon as some legislation can pass on speeding up the process with delayed bank responses we will continue to Clearly state Buyers Beware! know what you are getting Into
By Craig Schaid,  Wed Jun 1 2011, 04:22
Not only a great post Tara, but a ton of great info posted by people as well! Trulia Rocks!
By Wes Black,  Wed Jun 1 2011, 10:18
Another great article by Tara. She is awesome. I know the clients that work with her are in great hands.
By Michele Henderson,  Wed Jun 1 2011, 18:01
Good article, with excellent remarks!
By Ted Zervoudakis,  Wed Jun 1 2011, 18:16
I can not wait till short sales are a thing of the past. Best of luck to everyone involved. It is sad to say but the way they are now is better than in the past. I know the markets will improve.
By Jane Grant,  Thu Jun 2 2011, 10:27
Tara: If a consumer uses a buyer's agent they will have a much better chance of finding out all of the skeletons in the closet of a short sale. The buyer's agent can probe and ask questions to find out more about the chances of the short sale being approved. Also a buyer's agent can show the buyer other properties and even have many lined up if the short sale does not look like it is going to get approved. There are so many things that can make a short sale fall apart. Here in Southwest Riverside County, 30% of short sales never make it to bank approval!
By Lenjav,  Thu Jul 21 2011, 13:55
Everything that was said is so true, I will be going to closing soon. I had a appraisel done, on the property and found out that the Air Cond. Compressor unit was stolen the the home ramp sack, Who responible to replace these items.
By Kim Boulter,  Wed Sep 28 2011, 22:09
The biggest problem my buyers have is not being able to obtain financing for distressed properties. The bank may or may not be willing to fix any damage in the home, and the loan can't go through until repairs are done. It's a catch 22!
By Edyta Gryc - Broker Associate,  Tue Oct 4 2011, 19:47
Great blog as usual!
By Kevin Olson & Jessica Laude,  Thu Oct 6 2011, 19:17
Experienced agents screening situations a little better could eliminate a great deal of the problems. Much of the stress comes from agents overpromising or not doing their homework. With bank owned properties, it's usually only stressful if someone in the process is uneducated, or if they are overpromised at the beginning.
By Boston Luxury Residential LLC,  Sat Oct 8 2011, 15:07
I say stay away from short sales all together, if you can.
By Marvin Von Renchler,  Wed Oct 12 2011, 14:30
Very good article. Cant tell you how many buyers have told me they think buying a short is a big bargain and they think they are going to steal a house. Many do, as another agent mentioned, become angry at the lenders when their lowball offers are rejected. I dont write lowball offers unless its a total 'dont wanter' by the lender. That means a DUMP with some sweat equity upside, but we dont see many of those any more in my areas.

Did anyone ,ention above that the lender is NOT the owner unless its a full REO and that the lender doesnt owe any type of loyalty or agency to anyone? They will tell multiple buyers what all the buyers have offered to get the price up.
By Curt Lackey,  Fri Oct 14 2011, 13:56
Great article. I know one thing that shocks buyers of foreclosed property are the taxes. The taxes stay with the house and the new owner has to pay them.
By Lila Simpson,  Wed Oct 19 2011, 12:24
This is a great article and a great tool to give to buyers...both investors and first time home buyers! Thank you for the refresher!
Lila Simpson
Compass Your Real Estate Guide, llc
By Cat Delgado,  Mon Oct 24 2011, 05:25
Thanks for this very informative article, and for sharing so many of the details that the average buyer overlooks or is not aware of. Much appreciated!
By Jeremy Gulish,  Thu Oct 27 2011, 07:31
The hardest part for the buyers that I work with on Short Sales is often they try to consider common sense when dealing with the bank. They say, "Aren't the banks going to continue to lose money if it sits?" "Aren't the banks' stock prices declining?" "Isn't that mold problem going to get worse?" Yes, yes, yes, I say but that doesn't mean that the bank sees it that way or if considering the same common sense. Banks are by no means typical sellers.
By memorylane1,  Mon Oct 31 2011, 05:34
here is something you agents may NOT LIKE. 6% commission is ABSURD. The average real estate agent has approximately 15 to 20 hours into a deal. short sale maybe 20 to 25 hours and that deserve $18,000.00 commission split 4 ways? $180.00 per hour, I think not. Mortgage Co, Banks and Real Estate Agents along with wall street are the biggest reason the economy in the USA went south. Its all about GREED. AND YES I do hold a REALTORS LICENSE. I never list at 6% and always gift back atleast 1% in various ways. Banks should ask agents to negotiate their commission, why not. Don't most deals in life involve negotiations. IF WE ALL GAVE A BIT BACK the economy would recover 10 times quicker. Lets try being givers and not takers.
By Deborah Griffin,  Mon Oct 31 2011, 06:21
Bank Owned and Short Sale purchases can be very frustrating. You must have patience!
By Davidrogers202,  Mon Oct 31 2011, 08:33
David rogers i was a short sales unit house waterville maine i was bank rupted forecloser pending i was in coldwell banker for a year couldnt sell it there got out of them relisted maine realty.com got paul dui master broker i did thhe shows sold the house in 6 month in the recession the worst time to sell i got an broker fee of 3 percent closing cost huge help too sell when you get flexible closing cost master brokers behind you i sold house 72,000 paided off home loan saved my credit thanks too master broker paul dui of maine realty im debt FREE plus renting again if we got all broker to cut there 8 percent screw over closing cost cut inhalf we could revive the buyers market and end the real estate recession night mare
By Dennis McIndoo,  Wed Nov 2 2011, 14:13
Good Article! It was interesting reading all the comments also. It seems as though as was mentioned in some of the later comments that the short sales are certainly far from being anywhere near easy but they are improving, at least with some of the banks. It is just so hard, no matter how hard you try to explain to a buyer the possible, or should I say probable, problems that can occur, that when things do get tough, it is if they didn't really hear what you told them. Added to that is the sad but true problem of hearing, in many cases, the selling agent tell us that it will be any day now. When all this happens, who does the buyer turn to? DUH! The only person they do have to turn to, their Realtor. Seemingly, one of the biggest problems is when a buyer makes a full priced offer on a home, then waits who knows how long and only then have the bank ask for more than full price on a counteroffer. I don't always blame the selling agent on this because they normally can't get an approved price from the bank. It just seems Bass Ackwards! I know in real estate the favorite phrase is LOCATION, LOCATION, LOCATION. With trying a short sale I feel it is PREPARATION, PREPARATION, PREPARATION, no matter if you are on the buying or selling side. Our office has a dedicated assistantto help agents with short sales.
By Eadmin,  Wed Nov 2 2011, 18:14
Im purchasing a forclosed home and just waiting for escrow to close, passing by the home on my way from work I saw the roof blew off , at least 1/4 of it. what am I suppose to do now? have seller fix ? who is responsible for that?
By Trevor Huntingford,  Wed Nov 2 2011, 19:31
Another great piece! Thanks for the outline.
By Ken Lampton,  Thu Nov 3 2011, 06:39
Great information. Well written. Very helpful.
By Sun Realty - Graham Ginsberg,  Thu Nov 3 2011, 07:09
Awesome post Tara, much appreciated http://www.naples-fl-real-estate.com/ we sell short sales and bank owned REO homes
By danielle.bingham,  Mon Dec 26 2011, 11:29
Very insightful piece, Tara. My partner and I are in the middle of a short sale purchase, and we walked into it knowing the rules of the game. We didn't low-ball, but we offered a bit on the low side--in cash. The seller had listed the property for much more that it would have sold for (our agent agreed). But, we backed our offer up with facts concerning sales in the area (three similar properties sold in the last six months within the window of what we offered), the condition of the property and photos to prove it. We also believe that the property is over-assessed by the county, so will be requesting a new assessment and a BPO.

There are a lot more "moving parts" to a short sale compared to a traditional sale or even a foreclosure. We took this on assuming that there will be no money paid by the seller and that the bank won't pay for any repairs (that's not the kind of business they're in, so why ask?). We *know* what it will take to fix and are prepared to wait.
By National Loan Council,  Mon Dec 26 2011, 12:11
The National Loan Council for
Gov't Loan Modifications
Efficient Effective Short Sale Approvals
Private REO Access
By mdahle3028,  Mon Jan 2 2012, 10:43
One should also inform buyers and Tax payers.....That these BANKS are reimbursed by the FDIC for any losses sustained by them in a short sale/foreclose. People need to realize the banks are still making money on the backs of the TAX Payer. Once again the tax payers are losing.

By M&j,  Mon Jan 16 2012, 06:20
This is a great article! We have been doing much research on this very subject..and now..after reading this article..we have decided to NOT bother with REOs or Foreclosures. Too much time..baggage..and headaches.
Thanks for a great article!
By waribokoreva,  Mon Jan 16 2012, 14:10
This article was very informative, and the responses and comments were very interesting, Bottom line is that
short sale or foreclosure sale can be very profitable. You just have to be prepared knowing that you can get lucky and the bank accepts and truly having a good team of experienced real estate professionals, from realtors to attorneys to loan officers working together to make it happen. Then, it can be a good experience.
By Will,  Tue Jan 31 2012, 19:32
I have the situation and need your suggestion. I have contracted with listing agent for fair market value. We compared the similar regular sale in the same street and make the offer. I have paid both home inspection and appraisal for loan. After we submitted the offer to the bank, the bank responded to request best bid or offer. My agent just resubmitted the offer. My agent and the seller agent are both experienced with short sale. They convince me will responding timely. My question is whether the bank will ask more than I may offer and break the deal.
By T.Roesch,  Mon Feb 6 2012, 07:04
I am looking for 1 bed.condo in Rancho Santa Margarita area.Up floor,70 000-100 000$.Pay cash. Tanks.My e-mail T.Roesch@yahoo.com
By NATIONAL LOAN COUNCIL,  Mon Feb 6 2012, 07:26
GUARANTEED Gov't/Bank Short Sale Approvals.
Don't let your frustration, NO Direct Access, get in the way of a
once in a lifetime opportunity for Sellers, Buyers, Realtors, Investors
CLOSE THIS WEEK or STOP FORECLOSURE!!! http://www.nationalloancouncil.us
By Stephanie Lang,  Mon Feb 6 2012, 07:36
Great article. Its definitely important to inform buyers and sellers about the difficultys they may face in the home buying/selling process. I like the addition of advice on how to avoid drama...really adds to your article!
By Ml6410,  Fri Mar 30 2012, 07:43
after reading all this kinda scares me, I am an individual who is a first time home buyer and paying cash "as is" for a REO foreclosure, My agent put an offer in " we didnt low ball, but put a fair price in" and The bank accepted my offer and I was told that the very next day by the seller, the following week all papers were sent to my realtor for me to go over with him and sign along with passing on my Em, I have a closing date in 2 weeks So it will be a total of roughly 30 days if all continues well, there are no tenants to worry about as the house is empty. My question is has anyone gotten this far to have something fall through or would you say I have nothing to worry about the home is mine? My realtor and I had to do alot of work such as searches etc. on this home ourselves which I believe helped move it along so quickly also due to the fact the asset manager was very responsive rather quickly " same day" My realtor and I worked very closely and stayed in contact everyday to help push this along. Would you say Im out of the woods ? This is a Freddie Mac Home and so far I have had NO probelms.
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By Fort worth,  Sat Dec 1 2012, 16:46
Government title company and HOA needed to protect home owners

I bought a home from classic century in fort worth, TX. I am a first time home buyer and I do not know how to buy a home. Classic century is one side of the building and Title Company is another side of the same building. All these are same known people as family members or friends. The title company people are keen in writing main parts such as mineral rights in the builders name or on their own name, although I asked several times they did not give mineral rights. For a 1200 sq ft home costing $90,000, mineral right is not going to cost over $1000. When the buyer pays this huge amount, why they can not sell the mineral right also to the buyer. The reason the builder and their associates come in the form of Home owner association. Some of these people are foreigners in origin. They vote for themselves to select HOA president, by calling 2-7 home owners, in the annual HOA meeting. Once in six months they collect HOA fees, whether the home owner uses HOA facility or not. Using the mineral right and HOA associates dig the home backyard, first in small size hole, by saying cable lines they are renewing. These builders are intentionally putting cable lines underground to the home, even near fences between two homes. They can put the cables in front of the homes where road is going. But if they put cable there, they can not enter in the home owners backyard. Therefore strategically for their own purpose they put cables in backyard also. This type of home selling crime is going on. This is one of the reasons people hesitate to buy home and thus home sale is down.

To better save the home buyers and live with honest, state government may open a government title company and the same office also can have government HOA officers. Whenever a home owner needs a home, first home owner agrees to pay the amount to the seller. Then, government officers from government title company can go, look and measure the land area of the home and if there is any defect such as intentional underground cable lines plotted by the builder or any other defect, can be asked to remove by the officer and thereafter write the property to the buyer. Thereafter, builder (seller) must not have any right to go to that sold home again. This will help the home owners to live in a better way without worry. This will also create many government jobs and also a good income as buyers pay some fees for the assessment costs and etc.
Builders and their friends in the name of HOA should not keep the mineral rights. Mineral right should be sold along with the home to the buyer. Or mineral right must be taken by the government and it belongs to the government. This mineral right helps the builders and their friends to dig home owners’ land and, to go without home owners permission, into the backyard of home owners, when the home owner is at work during morning time.

Fort worth, TX
By Roy Bush,  Sat Jul 13 2013, 21:45
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By Pashanjel,  Tue Nov 5 2013, 10:40
Nice blog thanks for sharing with us.
Plumbing San Gabriel

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