In addition to listing and selling dozens of short sales over the last 4 years, I have helped a number of buyers. Short sales are a great option for buyers to consider. The key is how the contract is written.
First, in short sales, DO NOT expect the seller or the seller’s lender to make the repairs. That will not happen. Include as a contingency any and all inspections you want as a buyer. For example, we always suggest physical inspection, termite inspection, roof, chimney, gutter siding, foundation if you are on a hill or if there are severe cracks in the walls and foundation, HVAC to name a few. Request credit for buyers’ closing costs up front. DO NOT expect the seller’s lender to provide a home warranty for the first year.
Okay, so you found a house, you love it, it’s a short sale, and you put it up for sale. The seller’s lender comes back within 3-6 weeks and says accepted. You have inspections. Termite shows $10,000 in damages that I didn’t expect… Should I cancel the contract or what? What you need to do is submit 2 more bids for the cost of work in writing, on the authorized vendor’s letterhead along with pictures, and submit to the listing agent to forward to the negotiator for review. Do not expect the lender or seller to repair BUT you can ask the seller’s lender to reduce the price accordingly. Depending on how much credit you applied for in advance will depend on whether you can claim it as a credit for closing costs.
Remember that your lender has standards. Many lenders will allow up to a 6% credit toward closing costs. Anything above that would have to come out of the purchase price. What dealers won’t tell listing agents is that they typically have set aside a fund to address items found on inspections. The listing agent must request a return of the credit and/or a reduction in price, but must also provide proof of cost of repairs along with photos. Negotiators know that if the house is put back on the market, items that need repair or treatment will have to be reported to the next buyer. Most negotiators will go to work and get the credit and/or reduce the purchase price… Some investors who have the notes will simply say to put them back on the market or execute them (INVESTORS make the final decision on most cases). boxes).
I have successfully negotiated several short sales for a reduction in price and/or a credit back to the buyer when presented with written offers on LICENSED vendors’ letterhead, as well as photos. I will also redo the comps to show the negotiator that other homes are in good shape and are selling at a much higher price or the original purchase price of the short sale property and that this should be taken into account. It’s not automatic and sometimes we go back and forth, but as long as there is strong documentation, the buyer can expect to at least get credit for closing costs.
A buyer SHOULD NEVER ASSUME when there is a short sale approval in writing that the trustee sale will be postponed and then waste time with a lender who does not move quickly to get the buyers loan approved and close the escrow safely. timely. That’s Russian Roulette in Short Sales… Investors have the last word and if they feel they will benefit more from the foreclosure, they will simply tell the negotiator that they are foreclosure. While in most cases we can get an extension to escrow closing, there have been circumstances where an extension was not granted and the home was foreclosed on. In essence, what I am saying is this… if you are a qualified and serious buyer, PLEASE get a loan pre-approved IN ADVANCE before making an offer SUBJECT to a satisfactory appraisal and ratified contract.
Stay on top of your loan officer. Be prepared to move quickly, provide the necessary documentation in a timely manner. In terms of the offer price, the selling lender is typically looking for a fair market value. So if similar home comps and square footage sell in the area for $350,000, don’t enter $299,000. I guarantee you will be countered or the offer to buy will be denied. UNLESS there is something seriously wrong in the house, don’t go for the jugular. The seller’s lender will make their own appraisals and opinions on broker prices. Which may make sense to you in terms of the bank not foreclosing on a property… well… stop thinking that way… Most of my short sales have come to a successful conclusion.
The houses I had trouble with typically needed much more work than the market was willing to pay for the house. Investors felt that foreclosure would provide more relief than shorting in such cases.
In Summary: Buyers should consider short sale listings and they close and most close in the current market within 6 weeks to 3 months or less from the buyers offer to purchase. HAFA short sales have taken longer to get approved. It depends on whether banks use third parties to trade and who those third parties are. Short sales will still be around for a few years and that is why I am writing this article. Don’t automatically let them through.
