A lot of good answers from the Trulia Community...
I posted a short blog a few days ago on how to get approval for a short sale. You might find it interesting:
I am currently involved in 3 short sales. To answer your 1st question, YES, the bank decides to accept the price you offer. As far as timing, it varies. One SS never concluded as the bank did not accept the price offered by the buyer and it was rejected within days. Since the buyer was not willing to meet the price offered by the bank, the transaction concluded unresolved. In another SS, the offer was made and the bank has yet to accept the offer but has required many documents in the interim. This began in April 2008 and the property still has not closed in August 2008. It is a long process with little to no communication among the parties. One must have patience with the process and time to be able to wait the process out. In addition, attorney fees can be substantial. I agree with my colleague, James Boyer, you are better to research the market where you want to live and look for the best value. There are many homes that are well priced as we enter the Fall 08 market. Visit my website to view all listings in New Jersey. If you would like to discuss in detail the process of a short sale, please feel free to call my direct line @973-285-4672 with the best time to reach you.
If you decide to try to purchase a real estate short sale, you must allow at least 6 month time in your current home because it likely will be that long before you close on your short sale home. If you would like to see every home listed for sale in Morris, Essex, Union, & Somerset Counties visit http://www.jboyerhomes.com/search.php is it the nicest and most user friendly MLS search tool availible to the public.
Every situation and transaction is different. I have seen short sales transactions conclude quickly and others that were drawn out. Sometimes the experience of the agent or the willingness of the bank to yield plays a large role. I have also seen homes purchased well below market value. Again every situation is different and there is no one size fits all rule to short sales transactions. For what purpose are you looking to purchase?(primary residence or investment property) What areas are you interested in? Call me anytime direct and we can frankly discuss your real estate goals.
Time to negotiate and close. That depends on the lending institution and how well organized they are. I can get an answer in a day in some cases. At other institutions it may take a long time.
Finally, you may find that the lender has their own set of contract "rules." These can be offered as an addendum and usually do not favor the purchaser. I know of one case with a time of the essence clause where the seller had trouble clearing title but the lender insisted on charging the buyer for not coming to closing by the specified date! Do not accept conditions that you cannot meet just because they deem remote possibilities.
Remember, the owners are in trouble; you are bailing them and their lender out. If this does not result in a great deal for you, move on to another property. All properties have one characteristic in common: value for money. Short sales are not inherently better in this respect.
I think it was Gina who commented in another post something to the effect that short sales are anything but short....and boy, that is the truth.
Search and connect at http://www.feenick.com
It'll typically take about 3-4 months sometimes longer for a short sale to go through. Now some banks will work with the listing agent from the beginning and approve a price or at least a price range in which they will consider offers but some banks do not and simply say..."bring us an offer". In the banks that I've dealt with, provided the lender has all the paperwork they need from the seller on file, once an offer comes and goes through attorney review, the seller's lawyer submits a preliminary HUD 1 to the bank and shortly thereafter (7-14 days) a negotiator from the bank will be assigned and then the "numbers" discussion will take place. Up to that point, nobody will even discuss the dollar amount of the offer. To answer your question, some bank will simply reject the offer while others will counter or simply accept the offer. be prepared in the meantime (before hearing back from the bank as to whether they accept your offer or not) to go ahead and pay for the home inspection, mortgage application, etc. and once the bank decides that they will accept, be prepared to close at the drop of a hat. They take all the time in the world but when they give you a closing date...there is little flexibility. Of course, I haven't dealt with all the banks but from the short sales experience I have had on both the listing side of the transaction and as selling broker have pretty much been the same. Short sales aren't always the best deal - some of them are not in the greatest shape so you shouldn't limit your options when buying a home.
Also make sure you have a good buyer's agent representing you that has experience in short sales.
Gina Chirico, Sales Associate
Prudential New Jersey Properties
973-239-7700 ext 132
Now to your second question. It is possible that the lender will counter. Whether they'll accept your offer or decide to counter will depend on where the broker price opinion (BPO) and/or appraisal comes in. Lenders typically have a range and if the offer is within that range they'll most likely just accept the offer, but if it's outside their range, they'll counter. Don't expect to receive a written counter offer. The negotiator will usually just tell the listing agent the new price and then the listing agent will contact the buyer's agent and if the buyer agrees to the new price, the buyer's agent will prepare and addendum to the offer. Let's say your offer is for $250,000 and the BPO comes in at $280,000. There's a good chance that the lender will counter. On the other hand, if the BPO comes in at $265,000, they'll most likely just approve the offer provided everything else looks good (e.g, the seller has to show a hardship).
Your offer should be contingent upon bank approval by a certain date. That will give you a way out if the bank does not respond by a date certain. You can always extend the time, but you would not want to have a contract with the seller that does not have a specific date for the bank's approval.
Good luck to you.