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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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The short sale process starts out much like purchasing a traditional sale. Once you have found the house you're looking for you'll begin the offer process and this is where there is a fork in the road. Your educated listing agents are only going to accept one contract on the short sale listing and there are several reasons for this. I am going to give you the abridged version of the "typical process" because of available space issues on this forum.

Similar to a traditional purchase there may be a counter offer to an initial contract, and terms, purchase price or conditions might be countered. Don't believe that a short sale and fire sale is synonymous, the lender understands the present value of a property and will want to close at as high an acceptable percentage as possible. In our area the market has turn from a buyer's market to a seller's market. It's not uncommon to have multiple offers on a property these days. If you submit a full priced offer try to make you offer as clean as possible as it will be more attractive to the seller, especially if they get multiple offers. In a short sale the lender will have to approve the transaction and if there is more than one lender involved but will have to approve and yes other entities can be involved such as Private Mortgage Insurance companies. The listing agent will take the best offer and send it to the bank with a complete package of information. The negotiation takes place with all entities, counter may result and when all is done you count on the fact that the listing agent is well educated in the short sale process and gets an approval on the transaction.

When the contracts are received the seller will look to see how clean the contract is and the price. Know that cash is king; a cash offer with the full amount submitted to escrow before closing will take first place over cash with a low escrow and conditions. You will have to provide proof of funds with your offer as the bank will not consider an offer without this document. Coming in second will be the offers associated with lenders. If you're going in with a loan consider getting a prequalification conditional on the property only as this will strengthen your offer.

Ask your buyer's agent to put a clause in the offer that will protect your escrow. If your buyers agent knows the listing agent is a highly qualified short sale agent and there is a good likelihood of closing consider getting your home inspection sooner rather than later because 1) the buyer should know now versus the future if there any major problems 2) If major problems exist the inspection can be used as a negotiation tool with the lender(s) on price. 3) Cosmetic issues should be overlooked as typically that is already included in the Comparable Market Analysis perform by your buyers agent and built into your offer. I am out of space but you can see more information at the website below.

R. Jeffery Daley, MBA
Certifications: e-PRO, CLHMS, GRI, Diversity® CDPE
Luxury- Valley Homes Team - Keller Williams Realty
2 votes Thank Flag Link Mon Mar 5, 2012
Typically, purchasing a short sale is a waiting game that requires patience, persistence, commitment and an experienced Realtor.

1) Like any other home purchase, the Short Sale seller and their lender will need an approval letter of proof of funds demonstrating that you can purchase the home.

2) When the contract purchase offer is presented, be sure to request that the Seller is to keep the utilities accounts on or active until after the home is inspected. If they have vacated the home they may have turned those off. Keeping those active means you won't have to pay to have them turned on again.

3) You may be asked to sign an "AS-IS" agreement stating that you are not going to request any repairs on the home. If you are purchasing a Short Sale that may require repairs in order to obtain financing then be certain you understand that the seller can not pay for those repairs because they have a financial hardship (no money to pay for those) and the bank will not participate in any of those repairs because they have agreed to a "Net" amount for settlement and offering to pay for those repairs will affect that net number.

4) The seller may request you place non-refundable earnest money into the escrow account for 60-90-120 days. The reason for that is short sale purchasers have a tendency to become distracted by other properties they like as much or better and want to present an offer on those not informing the seller. That offer gets accepted and the seller of the original offer is not informed. If you do present a short sale purchase contract, you should be committed to purchase the home because walking away from the purchase during the negotiations can create significant problems for the seller. They may then have to start over finding a new buyer for the property if it has been placed in non-active status and there are no back up offers in place. This really stinks when it happens.

5) Remember that you have a contract for sale with the seller, but that purchase contract along with other information the seller needs to provide to the bank will have to be offered to the bank's representatives to obtain an "Agreement To Terms" between the seller and that banks representative and the note holder (the investor who lent the money for the original loan). In order to sell you the home, those terms will have to be acceptable to all, the seller, the bank, the note holder and you. There are also other influencing factors like Mortgage Insurance Companies, 2nd Lien Mortgages, Home Equity Loans that can complicate the process, so have your Realtor do as much question asking of those conditions to get a little better perspective on how things will move along. Most experienced Short Sale Realtors can give you a "best guess" for success of the short sale. the typical time line that most Realtors will tell you is 4-6 months, but it depends on how clouded the sellers property is. I have closed Phoenix Short Sales on average in about 4 months, but more expensive luxury properties can take up to a year.

6) When you have an Agreement To Terms between the sellers lender you should receive notice of that fro the sellers listing Realtor. Most of the time they will send you an actual copy of that agreement to terms. If there is a 2nd mortgage or 3rd party lien (other loans placed on the property) that needs to be paid off to release the title make absolutely certain that you are provided notice from those lenders as well. If not, then you may find yourself going to title ready to close and not be able to do that because other agreements were not made with the 2nd or 3rd party lenders.

I hope this information helps you. If you are considering selling your home as a Short Sale, you can find more information by going to http://www.stewkeene.com and looking at the buyers and sellers information provided there to guide you.

All the Best!

Stew Keene - Professional Realtor - Phoenix and Scottsdale Arizona
Serving the Entire Metro Area
Certified Short Sale Negotiator
(480) 220-7491
2 votes Thank Flag Link Mon Mar 5, 2012
Since you don't have communication with the lender yourself, you are relying on the listing agent and their experience. Depending on the bank and how many loans there are will usually determine how quickly or how long the process will take. Also will depend on if there was already an approval on it and the buyer walked. In general the process most likely will take at least 90 days to receive approval. If you have the patience and don't mind waiting, you can get a good deal. The pitfall would be that you waited all this time and the bank doesn't approve the short sale and it ends up going to foreclosure and you wasted all that time. Today many of the banks would rather do a short sale than a foreclosure, so hopefully that won't happen as long as the offer price is pretty close to fair market value.
Good Luck in your search
Lorrie Feld
Keller Williams Integrity First
2 votes Thank Flag Link Mon Mar 5, 2012
Am I the only person on here that looks to see who posted the question before responding??
0 votes Thank Flag Link Tue Mar 6, 2012
All of your questions concerning what the seller goes through can be answered by the website link below. Browse the information at your leisure and if you like what you learn you can also order a highly informative book at no charge (FREE is always a good price!). There is never a fee for any of my distressed property services. I also carry an IRS PTIN number as a tax preparer if you find that helpful.

Tom Walker
Solutions Real Estate
0 votes Thank Flag Link Tue Mar 6, 2012
I have worked on over 200 short sale transactions. The answer is simple: its all proeprty specific, nothing is general. Every loan / seller has uniqueness about them that can vary the length of negotiating. That said you should be able to resolve all elements within 90 days of having a signed contract.
0 votes Thank Flag Link Mon Mar 5, 2012
Every short sale follows the same process
Below is a description of the process:
Let me know if you have any questions.
1 - Short Sale Package Faxed to the PROCESSOR
2 - Short Sale Package Received
3 - BPO Complete
4 - Counter Offer
5 - Verbal Agreement
6 - Written Agreement

Hope this helps.

Terry S. Smith
DPR Realty LLC
8341 E. Gelding Drive
Scottsdale, AZ 85260
(602) 763-1858
0 votes Thank Flag Link Mon Mar 5, 2012
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