Short Sales

Asked by San, Maryland Thu Apr 16, 2009

I have talked with two realtors and they are trying to discourage me from looking into a short sale. As a first time buyer, do you recommend purchasing a short sale? Typically, what is the average time frame to close on a short sale? Can the bank contribute to closing cost? Are there any reasons to discourage a homeowner from purchasing a short sale besides possible damage to the home?

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Vicky Chrisn…, Agent, Purcellvile, VA
Sat Apr 18, 2009
Yes. There are lots of good reasons to caution you before you leap into a short sale. How about this latest - we're seeing sellers disappear. That's right, the bank approves it, the buyer is ready, willing and able and the seller disappears off the face of the earth. Buyers are stuck, their deposit is in escrow and they can't move forward very easily. The post below will help you learn about the different types of sales.

Short sales are doable... but you can't tell from the house or the listing.. your agent needs to know their way around things and truly know how to interview the listing agent, and learn about the sellers. More than in other transactions, you need to rely on the listing agent and sellers to hold up their end of the bargain, PLUS get banks with unknown goals and methods to agree. It's seriously tough stuff.
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The Hagley G…, Agent, Pleasanton, CA
Sat Apr 18, 2009
short sales can be good deals...but you have to be patient. Make sure you have a good Realtor representing you that is good on follow through
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Catherine Ed…, , Norfolk, VA
Thu Apr 16, 2009
Hi Dee--you've gotten some good infomation, but I'd like to add my two cents.

First of all, short sales are NOT AT ALL like buying from a seller in a regular transaction. Short sales occur because banks lent money on homes that then went down in value. The home owner--for one reason or another--wants or needs to sell the home, but the home is no longer worth what is owed on it. Therefore, the lender must agree to take less than they have already lent on the property--to "short" themselves--and accept a payment that allows them to mitigate their losses. In other words, the seller is not in the driver seat--the lender who holds the mortgage is.

Therefore, it is up to the mortgage holder to decide what closing costs, if any, they will pay for the buyer. Like many sellers in today's market, banks realize that many buyers don't have a lot of cash beyond the down payement, and many of them are prepared to pay reasonable settlement expenses. Some are less reasonable, and keep in mind that they will look at your offer as a whole--how much you offer, the amount of closing assistance you ask for, whether or not you ask for things like a carpet allowance, etc. You ask about possible damage to the home, but foreclosed homes aren't necessarily homes that have something wrong with them. Sometimes, homes are in foreclosure because of job transfers, loss of employment or other financial problems and not every owner responds to these pressures by damaging the home. (When I used to show HUD homes and VA homes, buyers often assumed that these homes would be in shoddy shape. They were often surprised to find that the homes in decent shape.)

Although there is no length of time that is true for every short sale, short sales do take extra time to complete. Here's why. Unlike a motivated seller, the bank will answer offers at their convenience--not yours. Even if you offer what the home is listed for--which (if the agent is experienced and knows what to do) will be the current value of the home--the bank will still be looking at that offer unhappily. Even if they get "full price," they are still getting less than they are owed. Also, many buyers and agents will offer below the asking price hoping to get lucky with a low offer. (Some do, some don't--it varies.) So, even with your best offer, the bank make hold on to that offer and delay responding because they are hoping for a better offer. (It's a little like taking an engagement ring from someone who is stil not sure they want to get married.)

It can take a long time to hear back from a bank about an offer you've submitted. (I started one in September--we closed in February.) Once they do accept your offer, however, you're usually expected to move, move, MOVE. You may have a month to get your financing finalized and your move-out/move-in arrangements in place. While you are waiting, there is virtually nothing you can do to make the bank decide faster, although you can (and probably should) continue to look for a home you like. (If you DO find one, be SURE your agent withdraws your offer to the bank before writing an offer on another home.) Waiting and then hurrying can be maddening. Will you still get your promised rate? Maybe--if it hasn't expired. What if your loan is still available but the interested rate is higher than what you were quoted two months ago--when you made the offer? The bank will see that as your problem, not their problem, and you may have to proceed with the loan anyway. What is you don't have enough notice to give notice to your landlord? That, too, will have to be dealt with on your own. While it is easy to blithely characterize real estate professionals as not wanting to work with short sales because it takes longer to get paid, it's a little more complicated than that for some of us.

Also--you should know that until very recently, agents who did stick in there for the long haul and help their buyers and sellers navigate short sales often had their comission held hostage at the closing table--they were promised one comission amount, but told they had to take a smaller payment in order to close the sale. None of the other professionals in the transaction--the lawyers, title folks, surveyors, appraisors, lenders, etc, were told they had to take a price cut--only real estate agents. Legislation recently passed to protect agents from this unfair practice.

In "short," short sales can be worth looking into, but they are certainly more complicated to negotiate than a typical deal. Do choose a Realtor who has some experience in dealing with short sales, and who is willing to put in the time, effort and know-how to make your short-sale purchase run as smoothly as possible.

Good luck, Dee! Happy home-hunting!
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Frank Bigans…, Agent, Newport News, VA
Thu Apr 16, 2009
Hi Dee,

If these Realtors are in-general discouraging you from looking into *any* short sale, then contact me and I will help you. As with most real estate purchases, any purchase can be summed up in two words:
"it depends."

As most agents have already answered, there’s many great opportunity with purchasing a short sale, but whether a particular property is a “good deal” or not depends on many factors.

I currently represent a seller/veteran who is NOT behind on her mortgage payments, but was transferred to another state. But since other properties in her neighborhood have recently been foreclosed upon and sold for far less, consequently, the value of her property diminished by about $25,000.

In addition, this seller does not have any cash to bring to the closing table so therefore, if a buyer is in need of closing costs, that would completely depend on whether the lender is willing to fork over the money for the buyer. That uncertainly alone might have me telling my buyer/client to move on to another property. But in general, I would never discourage anyone from looking at short sale properties.

Please note that there is a huge difference between a “short sale” property verses a bank owned and corporate owned property. My buyers who purchased bank owned properties have had all of their closing costs paid for by lenders recently, and they also purchased the property for $25,000 to $35,000 under market/assessed values too!

But buying a short sale also depends on how skilled the listing agent is too. If these other agents are discouraging you from buying a “particular” short sale property, then listing to them – it may not be worth your time.

Kind regards,

Frank Biganski, Realtor
(757) 303-0517
Web Reference:  http://www.mrtownhome.net
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KK German, Agent, Virginia Beach, VA
Thu Apr 16, 2009
Dear Dee, "The Juice must be Worth the Squeeze" according to a short sales specialist in our area. Short sales can take a lot of time, and your agent needs to have a host of questions ready to drill the listing agent to assess the likelihood of success in getting to closing with your chosen short sale house. I researched one of the cities in my area, Norfolk, and there are 99 currently active short sale listings, but 96 in the past year have expired, fallen through, or were withdrawn. 25 short sales succeeded last year and 5 are pending. So this illustrates they are a long shot, and SOME are not even great deals. You are dealing not only with the Seller, but their bank, or banks because there might be more than one lien holder. If there is a second or a third mortgage, slim to none chance that the 2nd or 3rd would be willing to sign off on the short sale, as their potential recoup of their loan would be zero. So, I would say exhaust all other homes before writing, and definitely hire an agent comfortable and knowledgeable about writing offers on short sales, AND also foreclosures, because we have a lot of those in the current market as well.
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Pamela Shipl…, , Cincinnati, OH
Thu Apr 16, 2009
I would definitely recommend purchasing a short sale. The question is do you have the patience for it? It generally takes weeks to a couple of months to finalize short sale purchases. The bank who holds the current mortgage will ask not only the homeowner, but you the buyer, to jump through quite a few hoops. The homeowner must submit to the bank a short sale package, which contains most of the same personal information that was provided on the original loan application and asks for an explanation of why they cannot continue to pay the mortgage. You and your buyer agent will be expected to submit a HUD 1 which will estimate very closely what the bank will net on the short sale. All of this, along with your written offer will be submitted to the bank's loss mitigation department. The time frame for working out a settlement depends largely on the bank's backlog of mortgage defaults and foreclosure's, as well as the feasibility of accepting the short sale instead of pursuing foreclosure action. The previous author is correct, find a good buyer agent who is knowledgeable in short sales and has the stamina to stick it out with you. If a Realtor is discouraging you from attempting a short sale purchase, more than likely it is that they either lack the knowledge or the patience to bring a short sale purchase to closing.
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blaison samu…, Agent, Santa Clara, CA
Thu Apr 16, 2009
Dee,

You need to find a realtor who knows about short sale. Short sale takes time sometime couple of months but if you have patience and time then its worth it. Most of the short sales are in good condition (far better than bank owned) but you have the right to do inspection and decide whether to continue or not, same as regular sale.

Yes! You can ask bank for closing cost also, if your offer is good, according to the market value. Agents are discouraging showing short sale because it takes times to close and get their fees. My suggestion would be to find another realtor who can show everything which meets your criteria.
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San, Home Buyer, Maryland
Thu Apr 16, 2009
Thank you for your input. I was thinking the same thing.
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Mike Linkena…, Agent, Jacksonville, FL
Thu Apr 16, 2009
And as far as the closing costs go, the sellers bank will typically pay all traditional sellers costs, and if the price is right, MAY also be willing to contribute towards buyers closing costs as well. There are really no reasons to discourage a buyer from buying a short sale, as MOST of the better properties are being sold off as short sales prior to foreclosure!
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Mike Linkena…, Agent, Jacksonville, FL
Thu Apr 16, 2009
The average time can vary dramatically from a few days to a few months. It is vital to get a buyers agent who is experienced in dealing with Short Sales. There are MANY variables for time of approval. Why do agents NOT want to work short sales sometimes?? Uncertainty. They want their commission, they want to get paid and KNOW that they will be paid. In a short sale, a lender COULD take a couple months just to say no to your offer, and usually the sellers lender will reduce the commission as well. Also, many agents are somewhat ignorant when it comes to short sales, in MANY respects. When buying a short sale home, consult a short sale specialist. To find a short sale specialist Realtor in your area, consult the resource below:
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