Property Q&A in San Bruno>Question Details

Kelly, Home Buyer in San Francisco County,...

Hi I was wondering if I could look at this how and how buying a short sale works?

Asked by Kelly, San Francisco County, CA Wed Feb 18, 2009

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There are currently 16 offers on the property as of today.

Dave Tapper
Cashin Company
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0 votes Thank Flag Link Thu Feb 19, 2009

I have seen the property at 2371 Valleywood Dr in San Bruno. Consider this a contractor's special,. The house needs a lot of work. Somebody started taking out walls and there is no kitchen etc. The outside picture does not tell the story. Let me know if you want to see for yourself.
0 votes Thank Flag Link Wed Feb 18, 2009
Hi Kelly, buying a short sale is no different than buying a non-distressed property. A Short Sale is where the net proceeds of the sale will not satisfy the current payoff amount of the 1st and/or 2nd mortgage, if applicable, and the resulting selling costs. Typically in these cases there are also significant unpaid property taxes.

You do not work with the bank directly, the Seller’s agent does, and I can tell you that use of the word “work” is an over statement. There’s not much back and forth status between the Seller’s agent and the Lender, which can be extremely frustrating for you and the agent that represents you. Expect a 60 to 90 day transaction period at the very least as the Lender(s) determines whether the offer is sufficient.

Keep in mind if there is a 1st/2nd loan combo on the property you will need two "yes" votes on the short sale. Having the loans from the same company does not necessarily speed the process as both lenders need to agree who gets what portion of the purchase money.

I have done both, but REOs are a MUCH BETTER way to go than Short Sales. Consider these points:

1) REOs are after the Short Sale process has failed. These properties are now bank-owned and which now has the Bank carrying all of the costs for upkeep, insurance, utilities, etc. Banks do not like owning REOs, so they are highly motivated to get the property “off the books”, which works in the Buyer’s favor.

2) It takes few days to hear whether your offer has been accepted in an REO. Short Sales are typically at least a 45-60 day waiting period before you hear back from the Bank (but, as I shared, that one in August was 99 days).

3) Unless you specifically, and successfully, remove the option via your offer, in a Short Sale the property will likely remain "on market" allowing potentially better offers to come in while the bank decides. This means your time waiting to hear back from the bank may be wasted. You can easily be living in an REO well within 30 days, or sooner.

4) REOs are much easier to show because the former owners are no longer living in the house. Also, first-level agent inspections are easier because the property doesn’t have anything blocking one’s view. Some may view this a trivial, but you can really find out a lot about a house when it’s empty because it focuses you on the walls & floors rather than pictures and furniture, for example.

5) If you use an FHA loan you can ask for up to a 6% seller credit where typically this is maxed at 3% for non-FHA financing. I have negotiated a 6% seller credit on all my REO purchases this year - in addition to price reductions!

The only downside to REOs that I can think of is possibly that in "hot" areas you may never see a REO property because they are "snatched up" during the Short Sale process. However, looking at by-city distressed property stats I have yet to see 100% short sales, so the REOs are out there for the taking.

Best, Steve
0 votes Thank Flag Link Wed Feb 18, 2009
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