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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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That is a tough question to answer - a short sale can take anywhere from 3 weeks to 9 months to get an answer from the bank as to whether or not they will accept the offer. By the way - the bank can come back and tell you they need more than the asking price to make it work. They typically do not allow for any tests, inspections or repairs to be paid out of the amount that is being offered. Sometimes they will allow an amount for buyers closing costs but not always. The pitfalls are just that - they may take a long time to get an answer, they may ask for more than you see the listed price at and they do not help with tests, inspections, repairs, etc. The good part about it - you normally get a really good buy if you have the patience and time to wait. Good luck!
3 votes Thank Flag Link Mon Mar 5, 2012
The process is just like buying a house. Get pre approved and write an offer. YOur agent presents the offer to the seller and if the seller agrees to the terms it is sent to the bank. Now the hard part for most buyers is the waiting and no response from the bank. You don't need any earnest money except a note in most cases or an inspection until the seller and bank agree to the terms. It is getting better with a few banks but in most cases you will have to wait at least 2-3 months for a reply and most buyers cannot wait or do not wish to wait that long because you have nothing that says even if the bank agrees that the seller in the end will sign the papers since sometimes the bank will go after the seller if they have a second and want to seller to agree that the bank can come after them in the future. Then seller decides to wait it out and let it go to foreclosure and live in the house for free until they get evicted so the buyer waited many months for nothing. If you have the time you can get a great deal many times because a short sale will sell for less because of the time issues. Work with a CDPE (Certified Distressed Property Expert) short sale specialist they understand the buying process. I would still keep looking because you can with draw your offer at any time and many buyers end up doing this if another house comes along. Right now buyers will be looking to get a loan lock and close with FHA since the loan rates will go up April 1st witn all FHA loans so they are looking to get a lock on the loan now to save money every month in the future. Good Luck.

Tom Inglesby, Broker
CDPE, ABR,CRS
RE/MAX Equity Group
2 votes Thank Flag Link Mon Mar 5, 2012
Tom pretty much summed up the process, but it's important to know that there is a process once the offer hits the sellers bank as well. Remember, the reason it is a short sale if because the value of the home is less than the sellers payoff, so the bank is going to end up being short. Once the offer is delivered to the seller, the seller will usually accept it fairly quickly because they want it to get to the bank ASAP so a negotiator can be assigned. From there, the bank will often times order a BPO (brokers price opinion) from a 3rd party to ensure the offer is somewhat in the range for fair market value. From there, the bank may have to get approval from their investors (Fannie Mae, Freddie Mac, HUD, mortgage insurance companies, etc) before giving the go ahead to accept. So as was previously stated, you must have patience and a persistent buyers agent to succeed in buying a short sale.
1 vote Thank Flag Link Mon Mar 5, 2012
I have a whole blog practically dedicated to short sales. A huge amount of information needs to be passed to the buyer. I would start by saying that it takes at least 3 months to close and the pitfalls are numerous: the seller generally won't make repairs, the bank can pull out at anytime, and it can get delayed over and over again for almost no reason. You need to work with someone who knows the process from start to finish. (CSSA - Certified Short Sale Agent)
0 votes Thank Flag Link Mon Mar 19, 2012
There really is no typical short sale. As Tom indicated the waiting is the worst but if you have the luxury of time and/or the fortitude to keep looking then you might get a good deal. Your responsibility is the same as with a regular sale. Get yourself pre approved for financing. Some short sale lenders require you to get pre-approved through them, even though you don't ultimately have to use them. Having your own broker is especially important with these kinds of sales because you absolutely want your own representation. Much time is spent on the phone with the listing agent just tracking progress (or lack thereof) and without your own broker you would have to do that. You might want to check into REO properties as an alternative. Much more like "normal" sales. Good luck.
0 votes Thank Flag Link Mon Mar 5, 2012
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