Short Sales for Buyers
How is a short sale different?
In a traditional real estate transaction, there are two parties - the buyer and seller. With a short sale, add one more -the bank. Like any other real estate purchase, a buyer sees a property they like and submits an offer to the seller. If the seller likes the offer, they accept it, contingent upon the approval by the bank. NOT all property you find is a real Short Sale property...IF the sellers lender finds any of the following items the deal could be dead! In some cases the lender has NO idea that a property is being Short Sold until an offer is presented to them.
- Seller has the financial means to make mortgage payments
- Seller has the financial means to liquidate the owed balance
- Does the seller own other property, second home, investments, rentals
- A complete financial disclosure will be required and reviewed
The buyer can still perform an inspection, but since the sale is “as is,” neither the seller nor the bank are going to make any repairs. In addition, lenders will not permit closing cost credits for repairs. Usually NO FHA or VA loans will be used to buy for this very reason.
Good credit, money down, pre approval and a quick closing will be what you will need to expect when purchaseing a Short Sale or Foreclosure. Lenders require a pre approval letter from the buyers lender to be submitted with ALL written offers on any Short Sales!
The buyer still pays for their own appraisal via their bank but the seller’s lender also has an appraisal done and it is this appraisal that matters. The bank will base its decision to accept or reject the short sale based on their appraisal - and they have been known to reject offers that are lower than the appraisal. They may even come back to the buyer and ask for the buyer to increase their offer before approving the short sale.
The time to close in a short sale is also different. A bank can take anywhere from 4-6 weeks (possibly longer) to approve the sale and once they approve, they generally may want to close in 10 days. So, before the sale is even approved, the buyer will have already had an inspection and had their appraisal done.
"The 'Short Sale' is a great way for buyers to acquire property at the lowest possible price and at the same time it is often the best alternative for property owners who are saddled with loans that are greater than their equity."
"Short Sale transactions take more time than normal property sales," says Bigness who concludes that "though the process requires your patience and careful attention to the legal details, the results are well worth it, especially if you have been looking to own property in Florida."
Investing in short sales can be an excellent way to purchase property with “built-in” equity. However, if you’re not interested in owning and maintaining that property indefinitely, then you need to have a plan for locating a buyer for this bargain you’ve just talked the bank into selling. It really depends on timing, the market and housing supply and demand with respect to the neighborhood or particulay area even within a city.
Who would be interested in a home that:
Is for sale at a price below its appraised value – way below in many cases
May need to have some repair work done (but remember, this would usually be factored into an appraisal)
Is available immediately – no move-in/move-out date hassles
Only one of those three things has any kind of negative connotations, really, and that is the repairs. And to a person knowledgeable in repairing or rehabbing – or to one willing to devote some money to revamping their dream home – those repairs may be a blessing. After all, without that damage, it’s entirely possible the house would not be the bargain it is! NO repair rebates or credits will be given AS IS means just that!
So, who are these people?
Investors.
Real estate investing takes on many different aspects. Some people – like you! – prefer a quick sale with a large and relatively immediate payoff, while others view owning property as a retirement supplement or a longer-term relationship. People interested in holding on to their investment properties will be more willing to invest a little time, effort and even money into fixing them up, since they view their long-term payoffs as more than worth a short-term inconvenience.
Purchasing homes that banks have approved to take a loss on can be a very good way to walk into an equity position in a home. The key is however that the person working with the bank is knowledgeable on short sales, what the bank needs and how to go about setting the home up for a sale prior to an offer even being made. In some circumstances the time for a short sale doesn’t have to be extremely long, in fact i have negotiated terms with a bank and a buyer in less than 30 days. If however, the real estate agent is not aware of the tools at their disposal to make the job of the bank easier, then the bank will appropriately move slowly. A short sale is a great way for a seller to avoid foreclosure and a great buying option for an investor.
So use the right Realtor to assist and guide you in the process!
Investors may be interested in getting involved in property management (they may want to establish a rental portfolio) or they may hope to sell the home yet again for a quick profit on their investment.
Rehabbers and Renovators.
The people out there with a passion, proficiency, or both – for “fixer-uppers.” Some of them move into the homes, fix them up, then sell them, while others view them more as investments. And some people just want to buy a great house that they can mold into the home of their dreams. All of these people could be willing to overlook the inconvenience of repairs in light of pursuing a hobby or profit.
Prospective Home Owners.
Owning property is a major facet in most people’s “American Dream.” And the fact of the matter is, many people who dream this dream do not have the resources – financial or otherwise – to own their dream home. Because a short-sale can be purchased for so far under it’s potential value, you are very likely in possession of a piece of real estate that is in someone’s ideal school district, neighborhood or lifestyle goals, and you can present them with the opportunity to own this perfect property long before they otherwise could consider purchasing in that financial bracket. Sometimes a good deal is just that – a good deal. So if you’ve got one, you need to be sure people know about it.
1. Banks are requiring you to be pre-approved before they will even look at your offer. If you’re pre-approved with a reputable lender you increase your odds of success…
2. 5-10% of the purchase down payment before the bank will even consider their offer.
3. Some banks are not allowing ANY buyer assistance to be included.
Let’s be blunt– this section of the marketplace is meant for those rare individuals who have the cash to buy– and the banks are increasingly creating scenarios that focus on this type of buyer. You’ve got to have money and be a bit of a gambler (all these properties are in as-is condition)
Loss Mitigation departments are where workout and Short Sale proposals and decisions are processed for the banks and for mortgage servicers.
Loss mitigators are so backed up and take so long to do anything it becomes very frustrating for potential buyers while moving through the process.
"Another issue is that banks are slow to understand that the markets are moving down. In many cases they stick with appraisals based on six-month old comparables and don't take into account that a property they are not willing to sell for fair market value will end up on their books and will become a big financial burden.
The purchase offer process:
- Once a buyer has found a property they may have an inspection done at their expense to obtain a report on condition.
- Provide your Realtor with your financial infoirmation, letter of funds verification, or pre approval letter from lender.
- Complete the purchase offer along with a Short Sale Addendum
- Deposit check made out to accompany purchase offer, 5-10% down
- Present purchase offer to listing agent or lender on property, the response time can take a month or longer just to get a response from lender...
- IF the offer is accepted, and may in fact may have to go higher, a written notice will be given and a closing date will be given.
- Funds to close will be required for closing, a settlement cost estimate will be provided prior to closing.
- You will have contacted your insurance agent for a homeowner policy.
A good Short Sale Representative will research, and provide you with all of the information you will need to locate and purchase a home.
- We provide County Tax Information
- County Public Records Information
- County Property Appraiser Information
- Property Floorplan when Available
- Property Aerial Photos as Available
- Comparable Sales Reports
- Listing History of Property
We can help by meeting with appraisers with good comparable sales of the market and work with them to justify value...
The Bigness Group can be YOUR partner in locating, selecting and making a successful purchase on Short Sale and Foreclosure property.
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