Here are five things you should be aware of when considering purchasing a short sale. This will help with some insight into the short sale process from a buyer’s standpoint and inform you on what to expect when dealing with a short sale.
What is a Short Sale?
Short sale is where the bank or banks will take less than what is owed to them, thus creating a short payoff to the bank.
There could be several factors that brought the homeowner and bank to this road cross. The most common is the lack of equity in the home to pay of the liens (mortgages), mostly due to declining home values.
The homeowner may be behind on their payments caused by events that happened in their lives like; job loss, death in the family and heath issues. When the sellers are behind on their payments, these missed payments are being added to the principle balance, thus increasing the dept on the property.
Homeowners may be current on their payments and still need to do a short sale and yes this does happen time-to-time due to decreasing property values and the seller has a job transfer.
If there is more than one mortgage on the home, each mortgage companies will have to be involved in the short sale process.
How do you know The Home Is a Short Sale?
Here in Utah, you can determine if the home that is currently listed is a short sale by the terms “Price subject To Third Party Approval”. This is indicating they are currently showing the home and accepting offers.
When the heading “Subject to third party approval” is followed by “Offer under Third Party Review”, this is stating they currently have an offer into the bank that is pending approval and they are accepting back up offers.
What happens when an offer is submitted?
Once an offer is placed on a home that is requiring a short sale, the buyer and seller does not have a binding contract at this time.
The contract will not be fully executed until the approval of the sell is obtained by the third party. With that being said the buyer is free to keep looking for a home and even have the right to put an offer in on other homes. And at the same time, the seller is free to continue receiving offers if desired.
The earnest money involved will not be cashed until the third party approval is obtained and once that is the case, the contract will become fully executed. For the most part, only one offer is submitted to the bank at a time. If there is a hungry buyer market then there are usually several offers on the home.
What usually happens in the transaction is the first buyer has grown tired of waiting and went out and found another home. This will bring up the next buyers inline or they may all have moved on at this point. This will start the cycle of finding a buyer over again.
What Impact does this have on purchasing a short sale?
What this does to the real estate transaction is cause lengthily delays. There are many reasons why the short sale process takes so long…there are several parties involved in making this happen and a ton of steps involved in the process.
The listing agent is working directly with the homeowner and their mortgage company. Several documents must be gathered from the seller to be sent into the mortgage company to help support the reason why the bank should take less than what is owed to them.
Once the banks gather all the information from the homeowner, they will request what is called a BPO (Broker Price Opinion) or an actual appraisal on the property to help determine the value of the home.
Short sales in our area are taking an average of 6 months to close. We have seen some transactions close has quickly as 3 months and take has long has a year or longer. Unfortunately, sometimes the deal may not even happen and end up going to auction and sold on the court house step.
Short sale is a great way to buy a home at a discounted price. The question is…are you willing and able to wait for months to close. You don’t want to put an offer in on a short sale and expect to close on the home in the same time it takes to close on a traditional home sell.
Here are 4 questions you should ask to find out where they are at in the short sale process.
- Have they just begun the short sale process?
- Is the list price an approved price from the bank?
- Has the BPO or appraisal been done yet?
- Are the sellers in bankruptcy?
I hope this helps you have a better understanding of what is involved in a short sale transaction, time frame associated and the impact this may have on your home buying adventure.
Happy House Hunting!
More Blog PostWhy buy a HUD home How owning real estate Vs Renting will build Wealth Buying a short sale Vs buying a bank owned property Todd Rodocker specializes with first time home buyers, seasoned buyers and investors. He can be contacted firstname.lastname@example.org, cell 801-694-0903 or by visiting his web sites www.utahrealestatestore.com www.UtahHomes.kwrealty.com