The Short Sale Buying Process

Short sale buying process can be convoluded, time intensive, and, often times frustrating to the buyer whose expectations are not aligned with the market. It is no secret that buyers are attracted to short sales for the potential price discounts that go along with distressed properties. However, going after a wrong short sale property may result in more headache than joy and more financial distress than gain.

What Do I Need To Know About Buying A Short Sale?

Every short sale buyer should be able to answer “Yes” to ALL of the following questions BEFORE submitting an offer on a short sale:

Is Your Real Estate Agent Familiar With The Short Sale Process?

Your buyer’s agent will be your main source of information and decision support. He or she must understand what’s involved and what signs to look for to determine potential success or failure. Practical experience is the best measure of knowledge in this case.

Simply ask your buyer’s agent: “How many short sale transactions were you involved in the last six months?”

Is The Listing Agent An Expert In Short Sales?

The listing agent is one of the most important parties in the transaction and his or her short sale experience, or lack thereof, is the biggest indicator of potential outcome. The listing agent will most likely be the one negotiating the sale with the lender(s) and will be the face of the entire transaction.

As a short sale buyer, you must make sure that you’re surrounded by professionals that can make the deal happen. Please click here for the most common short sale mistakes.

Do You Know How Many And What Kind Of Mortgages The Sellers Have?

The number of lenders involved in a short sale and the types of mortgages outstanding will significantly influence the timelines and success rates of the transaction. In most cases, dealing only with one mortgage increases the chances of success and decreases the potential time delays. But not always.

The presence of a mortgage insurance company can serve as a speed bump in most cases. If it’s a VA or FHA mortgage the short sale process is totally different than in a conventional setting. Knowing these and other nuances ahead of time is a must for all involved.

Do You Know Who The Servicers For The Loans Are?

The short sale industry has always been highly fragmented, and despite the Obama’s administration push to streamline the process, it remains so to this day. The companies that service the loans have their own guidelines and processes that will influence the time required for short sale approval. Although both Bank Of America and Wells Fargo are similar servicers in size, short sale approval period for the former will last months, whereas it may take weeks for the latter. Knowing the players involved will allow you, the short sale buyer, to have the right time expectations in place.

Is The Property Priced Correctly For The Market?

Frequently, an inexperienced short sale listing agent will price the property too low in order to solicit an offer from a buyer quickly with no chance of getting it approved by the lender(s). Regardless of whether this is done on purpose or by mistake, the buyer needs to beware.

Banks(s) that will approve or dissaprove a short sale will do their own appraisals on the property to determine its market value. If bank’s appraised value comes in significantly above the list and purchase price, it is a sure way to get the short sale denied and put the property on the road to foreclosure auction.

Is Your Offer Structured Correctly?

In order to yield a successful short sale buy, you must understand which seller-side expenses are allowed and which are not. For example, knowing the maximum allowable seller contribution is a major issue. Most servicers and mortgage investors will not allow more than 3% in seller contribution and if you are cash strapped and require more than that, you might be simply wasting your time. In an FHA short sale, the seller contribution might be cut down to 1% regardless of the purchase price and the net to seller.

Have More Questions About The Short Sale Buying Process?

These are just some of the questions that any short sale buyer must ask and get answers to prior to submitting an offer. Call us today at 443-660-8032 to find out what else to look for in a short sale transaction.