With short sale real estate negotiations on the rise, it is imperative you understand the process. A basic understanding will help to alleviate confusion and minimize stress.
What is a short sale?
A short sale in the most basic terms means the seller owes more to the bank than what the home will sell for in the current market.
Work with a Realtor
First and foremost work with a SFR certified real estate professional that understands the short sale process, and has successful experience in finding, negotiating, and closing a short sale transaction. This is paramount to the execution of the short sale process.
Properties that are listed should note something similar to "3rd party approval required" or "lender approval required" etc. This is noted in the agent only or private remarks and not in the public display. Potentially the MLS will require that change in the future.
The Short Sale Offer
Patience is the biggest challenge area for most buyers of short sales.
Traditionally, a buyer makes an offer to the seller. The seller then accepts, counters or rejects the offer. This process takes less than 24-48 hours. The buyer and seller come to terms and the home is sold. In a short sale situation, the seller receives the offer and negotiates with the buyer. Once the seller has accepted the offer it is then sent to the lien holder (bank).
The bank can take weeks to respond. They are getting more systematic these days in their processes. But still true is offers that are unrealistically low may not have any response of a rejection or counter offer. In many cases only the offer that is accepted will even receive a response. Additionally, while the bank is reviewing your offer, they will continue to market the property. Your offer may be one of several the bank will review. And in some cases the bank is reviewing not only your offer on this property, but has many other properties and offers to review as well.
Remember, the bank is trying to limit their losses. They legally have an obligation to get reasonable market value.
Short Sale Acceptance and Counter offers
Today most, if not all, lenders will not entertain a price discussion without an offer that is written, has earnest monies and pre-approval letters included. The "package" is submitted to the seller first. If accepted by the seller, it is then sent to the lender. The seller can accept an offer, only to be rejected or counter offered by the bank.
Banks do want good quality buyers; Many banks will require the buyer to be pre-approved by them. The buyer does not have to make loan application with that institution (by law they cannot require this), but this is a safety net for them. Should your other financing fall through, you would still be qualified with them and they can move forward to close the transaction. Almost all offers will come back to the buyer in the form of a counter offer. The bank may have approved the price, but their boiler plate verbiage is different than most purchase sale agreements. The counter offer must be read very carefully, as it will override the original offer. This is especially true in REO (bank owned) properties. Don't let emotion take over. Know what you are signing.
Short Sale Timelines
The clock starts ticking when the lien holder (bank) has accepted the offer. Once your offer is accepted, the timeline to close can move quickly. Usually it closes escrow in less than 30 days. The bank has made a determination using that closing date as part of the criteria to move it off their books. The penalty to extend the closing date can be expensive.
Misconceptions in Listing Prices on Short Sale properties
You see a wonderful Lake Oswego property at an incredible price. You think WOW, I will give them a full price offer and it is mine....not so fast... The list agent may just be fishing for an offer. Unfortunately, we are seeing this more and more.
The bank has given no indication they would settle for that price. The list agent may be just trying to get the ball rolling with the lender. The seller and sellers agent may be inexperienced in the short sale process and themselves not understand.
The seller and seller's agent have steps to follow to position the property for a short sale acceptance. Read my short sale for sellers to get an idea of what should be done by the seller before you enter into a short sale offer.
Conveyance of Short Sale Clear Title
The seller and lien holder must provide clear title to the property at closing. Often financially distressed sellers do not realize the extent of their obligations. The seller may have back child support, alimony, tax liens, or other attachments to the property that all must be paid off to give clear title.
The seller may not understand the process and that they must convey clear title. This is why it is important to work with a real estate professional who understands the process.
Every short sale is unique.
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