what is the steps to buy a short sale home what is needed?

Asked by alffysan, Rohnert Park, CA Mon Sep 16, 2013

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Steven Ornel…, Agent, Fremont, CA
Tue Sep 17, 2013
Hi alffysan,

Many would-be Buyers make the mistake of only focusing on distressed property due to a belief they are cheaper and less difficult to buy than non-distressed property - this simply is not the case.

Here's a quick relative risk/difficulty scale for distressed property (1 being the most risky):

1) Trustee Sale-
You personally go to the County court house and bid on a home you probably have never seen the inside of, nor will have the opportunity to fully investigate. Seasoned investors need only apply. Cash/Cashiers check only, no financing.

2) Auction Company Sale-
A little better, at least you have a seat in a packed room where the auctioneer’s primary job is to get the highest offer from a much larger group than #1 above has. You are buying “AS-IS”. Do you have the ability to gauge cost of repairs you might see? This option is best for those who can walk a home and calculate refurbishment costs on the fly IF an investigative period has been allowed. Perhaps, you might even attend one to see “how the sausage is made” and how comfortable you would be if you went this route.

3) REO-
When a property does not sell via #1 or #2 above you eventually see it come on market via a Realtor® MLS. You will still needs the skills to evaluate property condition and the good news is your Realtor® will be helping you to do so along with professional property inspectors you hire. The downside of an REO is the Bank typically only sells "AS IS" (meaning, the Bank will not typically make repairs even if you identify an issue) and the Seller's property disclosures are limited to what is statutorily required by law.

4) Short Sale-
While there is nothing chronologically short about this option (plan on 60-90+ days before a Lender approval) it nonetheless is the closest relative to the non-distressed sale. The only real risk with these transactions is the underwhelming boredom and the overwhelming mystery of why it takes so long to obtain an Approval(s).


If you are serious about buying a home find a Realtor® and ask that a custom automated MLS search agent be set-up to make sure you are seeing property that is actually for sale. Here’s what I would advise as being your first step: http://www.Steven-Anthony.com/GettingStarted

-Steve
0 votes
Joseph Finne…, Agent, Bethlehem, PA
Tue Sep 17, 2013
The main difference with a short sale is that it is contingent on bank approval. The bank or banks (there may be more than one lien) have to agree to be "shorted" the money they are owed by the seller. Two or more banks always makes the process more complicated.

An offer on a short sale is made the same as an offer on any property. The difference is an addendum should be done to put a deadline on the process. "I'll give the bank 2 months to reply to my offer". If the two months pass you, the buyer, can then continue to wait or terminate and place an offer on a different property.

When you place an offer on a short sale property, the seller may agree to your offer and place the property under agreement. That offer then gets sent over to the bank for review and approval.

At the same time, the seller must provide a letter of hardship (why should the bank forgive the difference in what is owed) and provide bank account statements and tax returns. The seller must cooperate and provide the required documents or the process will go nowhere.

The bank will order an appraisal to find out what the home is worth. They aren't going to allow a home worth $300,000 to be sold for $150,000.

After the bank reviews everything (which may take months), they will decide whether or not to accept your offer and "approve the short sale".

There are some major downfalls to a short sale:

1) It may take months to get a reply from the bank on whether or not they will accept your offer.
2) After waiting months, the bank may counter your offer with terms not acceptable to you.
3) The home is sold as-is. You can get inspections but the seller doesn't have the money for repairs and the bank won't pay for any repairs.
4) At any point, the seller may become uncooperative, decide to declare bankruptcy, or the home gets foreclosed on and the deal will fall apart.

I typically warn buyers that if they wish to put an offer on a short sale property it should be one that they totally love and REALLY want.

I hope this is of some help.

Regards,

Joe Finnerty
Prudential Patt White Real Estate
Lehigh Valley, PA
http://www.lehighvalleyhomesonline.com
0 votes
Dan Tabit, Agent, Issaquah, WA
Mon Sep 16, 2013
Alffysan,
The steps to buying a short sale compared to a regular sale are the ones called, becoming educated to the process, being patient and dealing with uncertainty.
A short sale is a complicated and unpredictable process. I've been doing them since 2002 when they were rare. I wrote a blog piece I'll link below regarding the Anatomy of a Short Sale. When you know all, or most of the working parts, it can help you be prepared if you choose to move forward on one.
My longest short sale took 19 months, my shortest about 4.5 months. I've had banks foreclose in the middle of the process, so the buyer got nothing. I've had buyer's run out of time 2 weeks before an approval arrived. I've had banks lose paperwork countless times, despite having fax receipts proving they were received.
If you proceed on a short sale, your buyer's agent should be knowledgeable about the process and hopefully have had successful experience closing some. Your agent should also research the listing agent to ensure they have also successfully closed short sales. No one is successful 100% of the time, but if they are not successful the majority of the time, consider another house.
Finally, are you prepared to wait, 3-9 months or more while rates change, the house conditions change and the market changes? If not, find another house.
0 votes
Allison Norm…, Agent, Santa Rosa, CA
Mon Sep 16, 2013
Buying a short sale is not very different than a regular sale. Like any type of real estate sale, you'll need a pre-approval from a lender for the purchase loan, a down payment (typically 3.5%-20% of the purchase price), a good Realtor representing you, and an agent, competent in the short sale process, representing the seller......and some TIME! The biggest difference between a regular sale and a short sale is time. The average short sale takes on average 5-6 months to complete, whereas the regular sale, in this area, takes about 30 days.

For more information about Real Estate in Sonoma County, tune into The Real Estate Hour, Sunday mornings from 9-10am on 1350AM KSRO, or streaming live at http://www.ksro.com...or NoDumbQuestion@gmail.com

Good luck ~ Allison
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