Short sales are very tricky. They (In my experience) have been more than twice the normal effort of a conventional sale. They can be very good for the buyer and an answer to the sellers prayers if successfully negotiated. The banks will negotiate very hard against the buyer but your buyers agent (Who may not be dealing with teh bank directly and only through the listing agent MUST know how to package the deal so they show the bank (on your behalf) what I call my "Short-Sale Vs. Foreclosure analysis and show the bank how they are still ending up thousands ahead of where they would be if they do foreclose on teh property and loose any buyer they have in hand.

Fri Jan 4 2008, 00:21

Thank you all for answering this question with a lot of excellent advices!
I am glad that I asked this question here. Yes, I am looking for a home to live with my family.

My agent did work on short sales before and she once listed one for a lender. In that case, the new buyer had to pay about 20,000 on top of sales price such as unpaid HOA, prepayment penalties etc. It could get complicated even more if it is involved with two or more lenders as she said. It took some time for her to close the deal.

I am ok with other stuff but the case that Maureen described, is a bit scary for me. As time stretches, other bidders could jump in and drive the price higher. I talked with my agent more on short sale issues and she agreed on that she can work on it if I want. But I will not jump on it right now. I will examine the risk more carefully and decide my last move based on that.


Thanks a lot.
ibyon

Depending on situation, I may change my mind.

Sat Oct 27 2007, 22:01

I am in the midst of representing a buyer on a short sale right now, and I think that the buyer wishes we could have found a conventional seller instead of a short sale. The time frame for the buyer is much
longer and there is more uncertainty. We did not hear back from the bank for 7 weeks and there were 3 competing offers. There have been a lot of other issues that would not have come up if we had only been dealing with a seller. The bank had two appraisals done, so the house is being sold at market value and "as is." We can have an inspection though.

If you can find a regular house, I would recommend it. But if it really is the house you love, then sit it out.

Ask to see preliminary title work and HUD. This will give you a true idea of how the costs are being distributed.

The other thing is that the agent who is negotiating with the bank has to be experienced at what they are doing. She has a buyer for the property that the bank does not want. she should be able to negotiate the taxes, commissions etc. so that they are paid by the bank. But your agent is probably not the one negotiating with the bank.

Ask your agent about her personal experience working short sales so you can get a better feel for where she is coming from.

Good Luck!

Sat Oct 27 2007, 18:03

For me it is a business decision. I will not work with a homeowner to purchase a short sale, but I will work with investors. The reason is the investor is not llooking to move, once the approval is in place an investor will act quickly which is what is needed. Again it is a business decision. I am not interested in waiting two three months to find out someone else bid $500 more.

I find that the buyers usually are not that patient. I don't know if you are an investor or a end user. As for commissions they always try to negotiate, I am willing to call their bluff, they are not going to buy it back for a small amount.

Good Luck

Sat Oct 27 2007, 17:40

Based on what you are saying in your post, I'd say go with your gut. First of all, you would have to agree to those "surprises" as part of the purchase contract. Any agent working in today's market that isn't willing and able to work short sales might not be around long! Sure, with a shortsale there is a lot of waiting around on the bank to respond, but in the meantime a buyer should be exploring all of their other options while they wait. Keep looking at all properties that match your criteria and continue to make offers until the right offer gets accepted. Experienced agents know how to manage this process of submitting and withdrawing offers as needed and won't limit what properties you have to choose from based on the seller type or their own comfort level. If your agent is unsure of the short sale process, she can ask her broker for assistance or a source of information.

Sat Oct 27 2007, 16:23

Ibyon, You've gotten some very good and valuable information here. I agree with Vicki below. You ARE able to get your own home inspection. As with any sale, you will personally be paying for the inspection, and they may not do any repairs, but that is EXACTLY why, if you go forward with one, that you need to know what is wrong with the house.

In most of the short sales I have seen, the sellers have paid for the termite/pest report. Whether or not the work will be done is really up to the seller's financial ability, or the bank.

I've not heard about the buyer being responsible for the seller's taxes. On the ones I have dealt with the lender paid the back taxes to unload the property.

Commissions are a bit dicey. It is a matter sometimes of the agents standing up for themselves with the banks, and remind the bank that the contract is between them and the principal (seller) and the bank doesn't have the right to change the perameters of the contract. There are times when our commissions are severely cut. Sometimes as agents we do what we do to help our clients through a difficult time- regardless of our profit margin. It's a give and take world, and those clients will remember the hard work we did to help them out.

Short sales ARE a longer, drawn out process, there is no doubt about it. IF you can get a great deal, and time is not an issue for you, then go ahead. You need to make sure you have an agent who is willing to stick it out for the long haul!
Patti Phillips
800-680-9133

Sat Oct 27 2007, 12:59

Hi Ibyon. There's no question that short sales are tricky and take long. The long time frame is not really the most discouraging aspect by itself. It's not knowing if the lender(s) will approve the offer that is frustrating as you have this offer hanging out there without knowing if the offer will be accepted or what terms the lender's counter-offer may contain. It is true that banks are trying to cut the commissions and I also have heard that they try to get the buyer to pay for past due taxes to close the transaction.

You'll also have to consider that many of the short sales on the market these days involve more than one lender which complicates the matter as the second is usually offered very little and has very little incentive to cooperate. Many times the second will wait till the last minute (i.e., shortly before the property is going to auction) and most buyers eventually lose interest because of the hoops they have to jump through.

You'll also have to expect to pay for all the inspections yourself and you have to go into the transaction knowing that the seller will not be able to repair anything or offer any repairs. You may end up paying for reports just to find out that there's too much wrong with the property to make it a wise investment.

I think your agent has some valid reasons for disliking short sales and you should not jump to the conclusion that the agent just does not like them for self-serving reasons. I would definitely not limit my search to short sale properties only as banks don't jump at the opportunity to sell below fair market value. A short sale only means that the owner owes more money than what he/she can get for the property. It does not mean that the buyer gets a good deal. Good luck,

Sat Oct 27 2007, 11:17

Ibyon, there is a LOT of work that goes into a short sale purchase. However, the bulk of the work is not on the selling agent - it is on the listing agent.

Definitely do your research. The agent's commission would be wrapped into the sale price. You CAN have your inspections done and you should never buy a property without doing a proper inspection first.

Escrows seem to be taking longer and longer these days. It sounds to me like your agent is trying to save you a headache and maybe she has never done a short sale and does not know what is involved. It sounds like a bit of misinformation or miscommunication to me.

Continue to do your homework and make a wise decision!

Sat Oct 27 2007, 10:55

Hi Ibyon:

Anthony gave you really good suggestions - from his previous answers, he is a seasoned real estate investor.

I agree that there are a lot of catches to a Short Sale; the agents, buyers and sellers all have to be educated so they are prepared to handle any situation that might arise and also be prepared for a lengthy waiting period and find out the lender did not approve your offer; all these can discourage an agent to deal with that. I am not sure of the 'agent's commission to next buyer' , I do know that lender will often negotiate down the commission offered to agents, which might again be something looked upon unfavorably by the agents. .

However, you are the one who is interested in the property and want to buy the house - after you look at all the facts and details, and if you are still willing to invest the time, money, and are O.K. with the uncertainty of the outcome to purchase this house, I don't see why your agent should refuse to help you in this deal.

A lot of times sellers do not provide inspection reports and the buyers have to get their own inspections - which I strongly recommend as sometimes a short sale property can be not well cared for; make sure you get a title report so you can make sure all the liens are cleared by your purchase,

Again, as a buyer, you should not worry about the commission; unless your agent make you sign something to the effect that if he/she doe snot get a specific percentage he/she deemed proper for the service, you will kick in, but that's unusual and only if you consent.

Short sales are very common now. CAR (California Association of Realtors) and our local realtor and MLS boards are coming out with new rules / clauses as items pop up. Make sure your realtor stay current with those things.

I just presented a short sale offer, but my buyers are well advised of the pros and cons of the short sale and they are willing to participate. I did not ever mention the commission part to them (I should be paid by the sellers not buyers, so they don't have to worry whether I get any commission or not).

Good Luck on this!
Sylvia

Sat Oct 27 2007, 10:34

You are allowed to get your own property inspection in a short sale transaction. I haven't heard of a lender offloading unpaid property taxes or the agents' commission onto the new buyer. I'm sure it's possible. I just haven't heard of it. Maybe someone else can comment on that part of your question.

My understanding is that you may be able to purchase a short sale property at up to 10% below the market value. But it is a lot of work and requires tons of patience on your part. You could be waiting 3 or more months for an answer from the lender, which then could be no, we won't take your offer.

Keep in mind that you'll be negotiating with the lien holder on the sale price, not the seller.

She knows your circumstances. She could be trying to save you from a lot of disappointment, frustration and waste of time. Short sales can be all of that.

What does your gut say? Have you worked with her before? Was she referred to you by a reliable friend?

Sat Oct 27 2007, 10:23

How experienced is your agent? Have you worked with her in the past. I've purchased two fixer upper properties in the past two years. Made offers on many more. And during the past 3 years, our agent has actually steered us away from properties I really liked. If she was really self interested, she would get you to close on the first property she could!

Look, do the numbers. With the unpaid taxes, the agent's commission (agree these are a bit unusual), after you remodel, do the numbers create a profit for you? Do you know what the property will sell for when you're done and do you have a healthy margin in case you find unexpected surprises like dry rot, bad foundation, mold, etc? Some people can buy on instinct, but back it up with good analysis.

Sat Oct 27 2007, 10:11