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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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Short sales are often a moving target. How to proceed depends on the circumstances of each one when determining the likelihood of success with respect to negotiating short sales.

In terms of time and pitfalls, you should look at a variety of factors:

1. Who is the bank?

Is the lienholder or bank a local lender or is the bank a national entity? If local, the chances are much greater of getting a timely and/or positive answer. If the bank is a large, national lender, the more likely the response will be delayed (sometimes considerably). However, even if the bank is a large one, the listing agent may be able to tell you whether they have worked with the bank before, how often, and if so, they may tell you what their experience has been with the bank. An experienced listing agent may have quick access to a bank negotiator and can find out information faster than others.

2. Is the agent representing the seller experienced in handling short sales?

The seller, the listing agent and the bank all want the sale to be successful as well. A common theme from agents is to place all or most of the blame on the bank in terms of the lack of success with the short sale. From the banks' perspective, it is important to be aware of the other side of the coin. Banks often claim the listing agent and/or the seller determines the success or failure of the short sale. Failure to provide the bank with all of the necessary documentation, not providing accurate information, or not following all of the bank's requests are some examples that cause considerable delay and/or an unsuccessful outcome. If there is one thing a bank wants to avoid more than a short sale, it is a foreclosure. Short sales are much more inexpensive to a bank than taking a property back via foreclosure. Have your agent try to find out how many short sales the agent has handled. Any agent can look up an agent on the MLS and find out how many short sales an agent has closed on behalf of a seller.

3. How many liens are involved with the home and how much are the liens?

In general, the fewer the lienholders involved with the home, the easier the short sale. Likewise, the less owed by the seller, the better the chances for a postive outcome.

4. Is the short sale price approved?

The listing agent will usually state the price has been approved by the lender. Ask if there have been other offers and if so, was the offer price accepted or did the bank counter and what was the counter price. If the offer was accepted, ask what happened to make the buyer change his/her mind?

5. What is the reason for the seller needing to sell short?

There are certain criteria that a seller must meet in order for the seller's lender to approve the short sale. Essentially, there can be a lot of reasons, but the general rule of thumb is something must have happened or will happen in the near future, which will cause the seller's expenses to outweigh their income and cause mortgage payments to be missed. It is not a question of whether or not the seller "wants" to do a short sale because they are under water. The seller must "need" to do the short sale. It is critical to find out what the circumstances are as to why the seller is doing the short sale. If the reasons are not likely to be approved by the bank, you will be wasting your time.

6. Is the seller's agent cooperative. Communication between agents is critical, especially with a short sale.

There is little or no downside to asking questions of the sellers' agent, especially an experienced one. You may say "Why would my agent ask the seller's agent if the bank will reduce the price after my inspection?" Of course they won't say "yes", right? That may be right. However, in my experience, the answer has been "yes" more often than I thought it would have been. There is nothing wrong with asking the question. If I hadn't asked, the decision to make the request might not have been made. Asking questions can provide potentially great information. Whatever the answer is, take it as part of the information needed to make a more informed decision. Asking questions, even ones that appear unproductive, does not mean they will be unproductive, nor does it mean suspending good judgment regardless of whether you like or don't like the answer.
2 votes Thank Flag Link Mon Mar 5, 2012
Aside from what else has been mentioned here, I agree having an agent who has done short sales in the past is important but you need to also be sure you're investigating what fee's are having to come out of your pocket. Some short sales require the buyer to pay 1-3% or a set minimum fee to a "third party negotiator", which in my eyes is really sketchy. Just a thought. Also work with an agent who knows a particular area. If you're in Seattle look for a Seattle agent, not someone from 20 miles outside of downtown.
2 votes Thank Flag Link Mon Mar 5, 2012
Typical process in buying a short sale is typically 4-7 months of waiting. Nothing Short About it. Buyer and seller agree and then submit the offer to the bank or lienholder to review which usually there is silence for about the next 30-60 days. Just when you forgot and moved on to other things...they might get back to you.
Web Reference: http://www.arron.net
1 vote Thank Flag Link Mon Mar 5, 2012
There is no such thing as a typical short sale. Like any sale, it all depends on the motivation of the seller and who controls the sale, the homeowner or the homeowner's lender. I've known of short sales that have languished for 6 months to a year before closing. You need to have an experienced Realtor working with you, advising you at each juncture. As mentioned by others, you also need to have patience. My advice; don't become obsessed with short sales. Sometimes, there are excellent deals to be found in homes that have already gone through foreclosure, are free of encumbrances, and listed and ready to be sold.
1 vote Thank Flag Link Mon Mar 5, 2012
0 votes Thank Flag Link Sat Apr 27, 2013
The SS timeline is much faster if you find a home with a price that has already been approved by the lender. This happens quite often - where the first buyer bails out just prior to closing, can be a good opportunity and a fairly quick close (say... 2 months)
0 votes Thank Flag Link Fri Apr 27, 2012
L.....O.....N....G..... Average 4-6 months or longer.
0 votes Thank Flag Link Wed Apr 25, 2012
The typical process of buying a short sale should be: seller and buyer agree to price/terms and they sign a contract, the contract is sent to the bank with the seller short sale package showing the seller's hardship, the bpo/appraisal is done, the bank approves, rejects or counters the buyer's offer.
If approved, the deal closes...Yet, short sales are not that simple. It could take from 2 months to 3 years...The pitfalls could start from uncooperative seller (who wants rent free living for as long as possible), a seller without a true hardship, a seller who might start a short sale and switch to a loan modification, refi or DIL...Unrealistic bpo value by a bpo agent out of the area (not familiar with the prices where your house is located)...Unresponsive loss mitigator in the bank...Investor who wants to foreclose (not doing the short sale)...

There are some things that you might be in control of though - like, you want to make sure that:

1) The price you are offering reflects the property problems, and, if the property is vacant for a long period of time or there are tenants, the potential deterioration of condition.

2) Both agents - the listing and the selling agent - are experienced in short sales, and the negotiator on the seller's side is knowledgable and experienced. The negotiator's services should not be paid by you, as a buyer, but by the seller or the realtor.

3) Follow up - reminding the listing agent/negotiator of your existance as a buyer - is very important, not to let anybody sleep on the job...

4) If new problems surface before the closing, request a price reduction

5) Be ready to close at any time - as many banks' approvals require a 2 week or even 10 day to closing, which could be less than what you have in mind

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes Thank Flag Link Wed Apr 25, 2012
Make sure you have a Realtor that is experienced in short sales, also make sure the short sale is being negotiated by a professional short sale negotiator. Being patient is key, but the process has become much better in terms of time frames
0 votes Thank Flag Link Mon Mar 5, 2012
Each short sale is unique but one common need is to work with an agent who has a proven track record of getting them closed ... And be patient.
0 votes Thank Flag Link Mon Mar 5, 2012
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