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What's the typical process when buying a short sale?

Asked by Trulia, San Francisco, CA Mon Mar 5, 2012

How long does it take? What are some pitfalls?

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Dan Gregor’s answer
A quick review of of the Columbus Board of Realtor's Forms "Addendum To The Residential Real Estate Purchase Contract" and "Understanding Short Sales" will give you a good feel for what you'll be in for when buying a short sale property. Any member of The Columbus Board of Realtors can provide you these forms.

As for timing, it could take less than 30 days to close or it may never close. The key here is the seller's lender(s). Some lenders have excellent systems in place, stay on top of the process and want to see the short sale process happen so they can get a bad loan off their books. But. in most cases it's pure persistence and a lot of patience that gets these transactions to to closing table. As a buyer don't expect to get direct straight forward answers to your questions when buying a short sale property. A sale can drag on for 6 months with no end in sight and then in 3 days everything comes together and you can schedule it to close.

As a buyer considering an offer on a short sale, the questions I would want answered are:
1) How many mortgages are there? If there's more than one it is a more difficult transaction.
2) What kind of mortgage is the first mortgage? FHA, VA, Conventional. Is a PMI company involved?
3) Are there any other liens beside the mortgages? If so, who's negotiating the releases? What's the likelihood of it actually getting releases and making it to a closing?
4) How far along in the short sale process is it?
5) Has the lender received/accepted the seller's financials?
6) Has a Broker's Price Opinion or Appraisal been completed for the seller's lender?
7) Has the seller's lender or government agency insuring the loan issued a short sale approval letter? If so, at what amount?

Answers to these questions can tell you at what price the home can be bought, approximate time it will take to close, and if it's even worth making an offer.

Contact me if you have specific questions I can answer at 614-548-0531 or you can get more short sale info online at http://www.ShortSalesColumbus.com
2 votes Thank Flag Link Mon Mar 5, 2012
The critical success factor in any short sale transaction is finding an agent who is experienced and specializes in these types of sales. Short sales typically represent an opportunity to pick up a property below market value and if you're able and willing to wait through the bank approval process, typically 30-60 days, short sales often represent some of the best opportunities available in the current market.

If you intend to consider properties offered via short sale, the first step is to find a Realtor who specializes in these types of sales. While there are lots of agents running around the Columbus and Central Ohio calling themselves short sale experts, most lack the expertise and experience to warrant the title. Completing an educational course and/or a couple of short sale transactions does not make one a specialist and to truly be an expert, agents need to have closed an array of transactions with a myriad of complicating factors, in a slew of different situations. They have to have closed short sales with every lender and have executive level contacts within these organizations whom they can call upon for assistance if required, experience with FHA insured and conventional loans, multiple liens, etc.. Short sale guidelines and lender protocols are constantly changing and an agent who specializes in these transactions will be best qualified to assist you and to help ensure that your transaction is a successful one!

The next step is to speak with a lender and secure a pre-approval letter. The banks will require that any offer made on a property offered via short sale be accompanied by a pre-approval letter. The preapproval letter simply demonstrates to the bank that the Buyer’s credit report has been reviewed and all information provided meets lender’s guidelines necessary for approval, subject to an appraisal, standard qualifications and final underwriting approval.

From here you search begins. As some of the prior posts have mentioned, once you’ve identified a property you’re interested in, there are a number of qualifying questions your agent will want to ask of the listing agent, this to determine the level of the agent’s short sale experience and the factors that might complicate the short sale transaction and decrease the chances of a successful approval and closing. As Dan has suggested the answers to these questions can tell you at what price the short sale can be approved and the home can be purchased, the approximate time it will take to get the approval and close, and if it's even worth making an offer.

There is also unique contract verbiage that is required when submitting a short sale offer. Many buyers mistaken believe the bank is the seller of the home in these short sale transactions, however, this is not the case and in fact short sales are pre-foreclosure transactions in which the borrower is still the owner of the property and thus the offer to purchase is presented to the borrower/homeowner and made subject to the bank’s approval and their agreement to accept a payoff that is less than the existing mortgage balance. There are a number of additional items your agent will need to include in a purchase offer made on a property offered through a short sale.

For additional information on purchasing short sale, or if you’re having trouble making your mortgage payment and have questions about short selling your home, please feel free to contact me at 614-332-6984 or you can get more short sale information online at http://www.JasonOpland.com
1 vote Thank Flag Link Mon Mar 5, 2012
Hi Other,
The short sale process can varie from bank to bank but the basics are the same, First you need to speak with a qualified lender and get pre-approved. Then you need to find a realtor you are comfortable with and start looking for homes. Once you have found a home if it is a short sale you will need to put in a offer. the biggest difference is the bank will have to approve the sale and usually it usually will take a bit longer can be as shoret as 30days or as long as 120 days. In most cases with a shoret sale the property is sold as-is and you as the buyer are responsible for any repairs needed. Each one can be a little different though so it is best to have a realtor that is familiar with the process.
0 votes Thank Flag Link Tue Mar 6, 2012
The typical short sale process is the same as a traditional sale process. 1) Obtain a pre-approval; 2) Locate a Realtor 3) Determine your wish list for a house 4) Look at houses 5) Negotiate a purchase price, terms and conditions of a contract 6) Conduct a Home inspection 7) Schedule the closing 8) Move in.

The time frame between short sales and traditional sales is the difference. Traditional sales will take 3-5 days to negotiate a purchase price/contract and then 30-45 days to close. Short Sales will take 60 - 120 days to negotiate a contract and then another 30-45 days to close.

Biggest pitfall for the Buyer - Not using an Realtor who has experience as a short sale buyer's agent. Although the Buyer's agent has little controll over the process he/she can let you know upfront if there is a good chance of having a succesful closing. There are plenty of agents who take on a short sale listing and dont have a clue on how to mange the process. A good short sale Buyer's agent knows the experienced Short Sale listing agents in the local market.

If you need more information then send me an email at ShortSaleRealtor@rickandrobin.com

Rick Lemmons
0 votes Thank Flag Link Tue Mar 6, 2012
The process is very similar, it just happens to take a bit longer. I've had a few close on time, however usually the bank ends up delaying the process. The biggest difference is that you need to be in a position to wait on an answer from the bank, and be prepared if it doesn't work out. Not a lot of people are in this position, but if you are you can really get a great deal.

My biggest caution is to make sure the home has been cared for properly during the process if the owner has moved out. Especially that it was winterized properly during winter months.
0 votes Thank Flag Link Mon Mar 5, 2012
Same as any. Make offer, negotiate, wait, close. Although, the wait part can be a little longer and it's very important to use an agent that has experience with CLOSING shortsales on both the listing and buying side. Using the right agent will insure that they can quiz the listing agent to make sure they've obtained all the documentation the Seller will need to turn in to the bank investor who funded their mortgage. Offering is a complete waste of time if you're working with an agent that doesn't know the specifics of this process because you'll get the run-around BIG TIME, and miss out on other deals as you wait to never hear back whether your offer was accepted or not. Feel free to private message me for more information as I've represented numerous Buyers and Sellers on short sales.
0 votes Thank Flag Link Mon Mar 5, 2012
Honestly, each short sale is so different. It depends on the agent, how they work their short sales, the bank, if there is an approval, how many lien holders are involved, how cooperative the sellers are, etc. There are so many variables that it is really tough to give you a time frame. One thing to keep in mind is the agent you hire to help you on the buying side. Make sure that your agent has experience. I have a serious of questions that I ask every listing agent on a short sale so that I know what is going on and so that my buyers have the right expectations. Not every short sale will successfully close but if you're working with an experienced agent you can avoid the pitfalls and horror stories!!
0 votes Thank Flag Link Mon Mar 5, 2012
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