Short sales are becoming increasingly popular in the real estate world because of the benefits they can offer to the homeowner, the bank or lender, and the homebuyer. For homeowners, short sales make it possible to avoid foreclosure and the damage that it can do to your credit score and future home buying plans. Banks will agree to short sales because it helps to avoid the high cost in dealing with a foreclosure; in some cases banks are actually providing incentives to homeowners to do a short sale and avoid the foreclosure process. And of course, the homebuyer benefits from buying a home below market value.
Our last blog defined a short sale in real estate, so here, we are going take it one step further to discuss the ins and outs of the short sale process.
First a disclaimer: The first thing to know when looking to buy a short sale, is that it is not a quick process by any means (short does not mean fast or easy). However, don’t let the sometimes-lengthy process dissuade you from purchasing a short sale. They are definitely quicker than buying a foreclosed home, which can take years, and offer many benefits.
How a Short Sale Begins
The seller needs to identify what type of short sale they qualify for, which will depend on the seller’s loan type and personal situation. This step is very important because if you choose the wrong short sale, “you could face personal liability, and you might be losing out on relocation funds. “ Once this is classified, the real estate agent will list the short sale home. The real estate agent you choose to work with should be well-versed in short sales; this goes for both buyers and sellers. Short sales can be tricky and you want to make sure your transaction goes off with as little trouble as possible.
Submitting an Offer for a Short Sale
Now that the short sale is on the market, someone is bound to submit an offer. The bank will not approve a short sale transaction until a buyer shows interest. Before a buyer submits an offer, it’s in their best interest to ask their real estate agent for a list of comparable sales (the bank will not likely accept if it’s way below market value). Once a buyer submits an offer , and the seller accepts, the real estate agent sends the purchase offer, along with a package of items including the listing agreement, the buyer’s preapproval letter and copy of earnest money check, and the seller’s short sale package (showing hardship) to the bank.
After this, it's a waiting game.
The bank may keep you waiting anywhere from a few weeks to a few months while they conduct their business. If the seller’s agent is good, he’ll regularly call to check up on the short sale. Once the approval letter is finally received by the seller’s agent, the agent calls the buyer’s agent, and hopefully the buyer is still interested and hasn’t moved on to purchase another home. If the buyer has moved on, the listing agent puts the home back on the market as an approved short sale. If the conditions are right on the approval letter, another buyer may be able to buy the home without the long waiting game the bank plays.
What other questions do you have about short sales? If you've gone through a short sale, what tips have you picked up along the way?