Buying a Home – Making an Offer on a Short Sale

Are you looking to buy a new home? In the current market, there are tons of short sales. In fact about 60 percent of the listings available in the Inland Empire are short sales.  It is pretty hard to ignore them. 

What is a short sale?  When a home is being sold for less than what the home owner owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many home owners are finding themselves in this situation because of job losses, relocation, and declining home values in a slower real estate market, etc.

A short sale is different from a foreclosure. In a foreclosure, the seller's lender has taken title to the home and is selling it directly.  Home owners often try to do a short sale in order to avoid foreclosure. But short sales may hold many potential pitfalls for buyers. Here is some information about buying a short sale you should be aware of: 

You're a good candidate for a short-sale purchase if:

• You're very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale and the terms (i.e. sale price) before you can close. When there is only one mortgage, lender approval typically takes about two to three months (but it can take longer). If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
• Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. Your offer will not be considered without a pre-approval from your lender.  You must also prove that you have down payment and closing cost funds available to close (referred to as proof of funds
• You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale probably won’t work for you. Lenders generally do not work with offers contingent upon the sale of the buyer’s house.

It is so important to work with a qualified real estate agent who has lots of experience with short sales.  A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the seller, listing agent and the seller’s lender.

Some of the other risks faced by buyers of short-sale properties include:

• Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer a lot lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months of waiting. Or the lender could make a counteroffer, which will lengthen the process. The counter offers from the lenders usually come towards the end of the approval process. 
• Bad terms. Even when a lender approves a short sale, they may require that the sellers sign a promissory note to repay the deficient amount of the loan (or part of it), which the seller may not agree to. In that case, there is no short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
• No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and most will not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.