Short Sales - Buyer tips
We are hearing a lot about short sales these days - buyers are asking about shorts sale- sellers are asking if its possible to short sell their home.
By Definition - In a short sale, the net proceeds from the sale are insufficient to cover the mortgage debt and all other costs of selling.
What does that actually mean?
If the seller can't make up the shortfall out of their reserve capital, savings and or credit card they may need to negotiate for reduced lien with the lien holders ( lenders) in an attempt to reach a solution in which the seller can proceed with a sale and avoid foreclosure. this solution may be the lender writing off a potion of the loan or asking the seller to sign a unsecured promisay note.
As a buyer there are a few things you need to know -
Banks don't always play ball!
1. Real estate agents representing a short sale seller may not "know" all the details of a short sale or my lack the experience to complete the transaction.
2. Short sales can take a tremendous amount of time- the increased delays may be caused by the lender analyzing the lower payoff for approval - this may have to go through multiple levels in the lenders organization (any of which may reject the offer)
3. Make realistic offers. Lenders analyze comparable sales and will not accept extremely low offers.
4. If you need housing quickly or are involved in a 1031 exchange, short sales may not be for you. Discuss this issue with your attorney.
5. Ask your buyer agent to analyze short sales to determine what comparable properties have sold for recently in your market. You may be surprised at some of the values in the market that are not "shorts"
6. If there are multiple offers on the property, make your offer's price and terms as attractive as possible to the lender. In many cases only the highest and best offer will be submitted to the lender for approval.
7. If the lender even offers to negotiate they may want to do so verbally. Discuss this issue with your attorney. (many lenders are too busy to counter and will only either accept or reject)
8. Short sales typically take 4-12 weeks longer than traditional sales. ( we are in week 14 of one negotiation!)
9. Lenders are liquidating properties to avoid foreclosure costs. They are not emotionally invested in the sale. They are usually large corporate organizations dealing with hundreds or even thousands of similar properties.
10. The loss mitigator handling the sale for the lender will typically seeks ways to reduce expenses. Therefore, the lender is unlikely to make repairs - and we already assume that the seller is not in a financial position to make repairs. Often, the property is sold "as is." Consult your attorney regarding what constitutes "as is".
11. Buyers should inspect the property thoroughly before the contract to determine if the level of anticipated repairs is factored into their analysis. Additionally, buyers must be ready for future unanticipated repair costs. Discuss these with your inspectors. (your real estate agent is not an inspector!)
12. Your buyer agent may ask you to pay their commission. If the lender requires the real estate agents to reduce their commissions, your buyer agent may contract you to pay them for the reduction.
Above all - seek legal advise from an attorney if you are considering the purchase of a short sale!
Marshallwalker.com and Keller Williams Historic Charleston recommend the use of a buyers agent when seeking a short sale or foreclosure - a good buyers agent may be able to facilitate the process and will always act in the buyers best interest. Remember- the sellers agent is bound by agency law to secure his client the most money he can to facilitate the pay off of any liens!