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Trulia, Other/Just Looking in San Francisco, CA

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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Question 1: How long does a short sale take? There is no single answer. Some factors that may or may not impact the time for a short sale includes: number of loans on the property, readiness of the seller to submit their paperwork to their lender(s), the lender (some banks are more efficient than others), who is servicing the loan (the bank or another party), fair market values in the community, acceptance of the buyers offer by the lender(s), etc. I had one short sale accepted by the sellers bank in 2 business days followed by a 30 day escrow. My longest short sale was over 7 months for the lenders acceptance and then a 40 day escrow due to the holidays. Most short sales are somewhere in between. And a few go longer.

Question 2: What are some pitfalls? 1. Buyers making a "low ball" offer. Buyers should work with their real estate agent to make a reasonable offer that the sellers lender will likely accept. Remember, the banks do their own market analysis and usually will not accept an offer just to close a transaction. They want to receive a fair market price. 2. Buyers running out of patience and giving up on the transaction without their agent notifying / communicating with the listing agent. 3. Buyers and their agents not talking regularly. Even if the conversation is to say there hasn't been any progress this week. Email or call your agent every week (or, ideally, your agent should call you!) And ask your agent about conversations / emails she / he has with the listing agent. Communication is key. 4. Losing confidence in your agent or the listing agent. Remember, everyone wants you to be able to buy the house and will not intentionally cause any delays. 5. Not being flexible. Short sale transactions don't always proceed the way a "traditional" sale would proceed. As the buyer, if you can be flexible, and occassionally put yourself in the shoes of the family who is "losing" their home, you will probably be more successful. 6. Buyers not being ready to get their financing, etc., once the lender acceptance is received. Buyers need to master the "hurry and wait" concept, with the "hurry" part coming at the end!

Naturally, not all situations are the same, and some of my comments above are not relevant to all short sale transactions.

Sally Blaze
Alain Pinel Realtors
DRE#01856137
925-998-1284
sblaze@apr.com
Web Reference: http://www.apr.com/sblaze
4 votes Thank Flag Link Mon Mar 5, 2012
You have already received some good answers from the other agents regarding short sales. The best thing to do,because their is so many variables in the short sale process, is to sit down with your agent and discuss in detail the process and what can happen and what to expect. Its almost impossible given the space on this forum to answer all the questions and give all the things that can come up. The good news is that is is getting easier with some of the banks. Find an agent that has experience with short sales and let them educate you about the process.

Good Luck,

Jim
2 votes Thank Flag Link Mon Mar 5, 2012
There is no typical process. Short sales are either streamlined with experienced agents and sellers who are interested in the process or they are avoidance mechanisms for having homes foreclosed

Trust a good agent to "suss" out the situation and speak with the agent and find out which one of these the short sale is

Make offers on multiple short sales even if they have offers if they are homes you want. It costs you nothing and you are more likely to get a home

Be prepared to spend money on deferred maintenance. Location is most important
List price on a short sale is not even close to what the home may or may not sell for

be prepared to wait a long time or you might get lucky -- leave the details to a professional
2 votes Thank Flag Link Mon Mar 5, 2012
A complete answer with all of the possible details and variations of the short sale requires an answer the size of a small textbook. I will give a brief summary of the simplest type of short sale with only one lender or lien holder.

A brief summary of the process, in the simplest case, where there is only one lender or lien holder is: When buying a short sale, the offer is made to the listing agent for the sellers.

If the sellers accept the offer, the offer is then submitted to the short sale lender. The short sale lender will make the decision whether or not to accept less than the amount owed to the lender.

If the short sale lender is willing to consider accepting less than the amount owed, the short sale lender will then hire one or more people (usally real estate brokers or real estate agents) to provide their opinion of the Fair Market Value of the property. (known as a BPO or Broker Price Opinion) Some short sale lenders require 3 or more Broker Price Opinions, not just one.

The short sale lender will either approve the offer by the buyer, reject the offer by the buyer or make a counter offer to the offer made by the buyer.


If there is more than one lender or lien holder, the process becomes much more complex, because we now must get the approval of all of the lienholders, not just one. I have closed short sales with as many as 4 lenders and lien holders, but when you have to get agreement from that many parties to accept less than the amount that they are owed, the process becomes very time consuming, complex and and frustrating. If any one of the lien holders refuses to accept less than the amount that they are owed or refuses to accept the amount they are offered, the short sale fails.

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com
DRE#00901872
1 vote Thank Flag Link Mon Mar 5, 2012
Typical process is wait, wait and wait some more…

The biggest pitfall to avoid is submitting an offer on a short sale that won’t go anywhere, so the biggest asset that a Buyer can have when it comes to purchasing a short sale is a Realtor that is familiar with understands the short sale process. This way your Realtor can evaluate the seller’s position (number of lien holders, reason for selling, status of foreclosure), as well as the listing agent’s knowledge of short sale transactions, upfront in order to determine the probability of success.

Having the right expectations of how the sale process will occur is, in my opinion, the most important key to the transaction…remember, a buyer is submitting an offer to purchase the seller’s home subject to the seller receiving written approval to sell his house for less than what is owed to his mortgage holders. If the buyer’s offer is accepted by seller then a binding contract is formed and the buyer has agreed not to breach such contract while the seller negotiates with their lien holders for such approval…this time period is know as the “short sale contingency period.”

Once a buyer’s offer is accepted by seller they have committed themselves to the sale until the expiration of the short sale contingency period. So please, DO NOT make offers on multiple properties…this is considered a breach of contract and is very unfair to the seller. It could also lead to possible claims against a cancelling buyer, especially if the seller is relying on the buyer’s offer in order to avoid foreclosure.

Remember, the short sale process is a balancing act between the buyer and seller…communication and trust between the parties is very important. The buyer should feel confident that if their offer is accepted that the seller will cooperate with their lien holders and that the listing agent will be able to negotiate a successful short sale approval. And, as the seller could be relying on the buyer’s offer in order to avoid foreclosure, the seller should be confident that the buyer chosen is both committed to seeing the short sale through to the end (or at least to the end of the short sale contingency time period) as well as qualified to closing the transaction once the short sale approvals have been negotiated.
1 vote Thank Flag Link Mon Mar 5, 2012
Short sales are very similar to a regular sale. However an inexperienced buyers or sellers agent can make the deal a total disaster for everyone.

Jim Mauldwin
Intero Real Estate
Dre # 01125380 since 1991
408-863-3020
Web Reference: http://Jimmauldwin.com
1 vote Thank Flag Link Mon Mar 5, 2012
A short sale can take anywhere from around 4-8 months on average, but they can be shorter or much longer too. Potential pitfalls include the waiting time (though this may not actually be a pitfall or an issue for you), the fact that it may not ever get approved, and it may be sold as-is with no repairs done. Read more here for more information about these questions and more: http://richardschulman.com/buyers/short-sales/

Richard Schulman
Keller Williams Realty
0 votes Thank Flag Link Tue Mar 6, 2012
The process for writing an offer is similar to a regular sale but you will fill add a short sale addendum to stipulate timing.

There is a VERY good advisory called the Short Sale Advisory that really explains a lot of the in and outs of a short sale. It was designed to educate the buyer and seller about the process. I can get a copy of it for anyone that is interested in reading it.

Short sale timing can very greatly as there are many factors that affect how and when the short sale lenders will respond. Talking with a knowledgeable Realtor helps on this.

One good designation to look for is a CDPE (Certified Distressed Property Expert). They get great training on this subject. You can find out more at http://www.cdpe.com

Pat Chadwell, broker
CRS, SRES, CDPE, CIAS, ePro, SFR
Realty World - Residential Specialists
408-927-6565 x 11
http://www.patchadwell.com
Web Reference: http://www.patchadwell.com
0 votes Thank Flag Link Tue Mar 6, 2012
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