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Re: Short Sales
I have handled short sales for sellers who need to do them, but I generally steer my buyer clients away from them (unless of course it's an investor who is more prepared for the challenges). For the average buyer looking to purchase a residence to live in, a short sale isn't the way to go.
As a buyer -- and a buyer's agent -- you just don't have much (if any) control over the process. There are a lot of uncertainties.
Yes - everyone knows that a short sale can take a long time to get approved. But what many people don't know or fully understand is that the bank (or banks) that need to approve usually don't get at all involved until the buyer and seller are in full contract. At that point, the seller initiates a short sale and the bank will start looking at it. But up until that point, the bank doesn't even know it's on the market and doesn't know the price. (The exception to this is if the house has been on the market awhile and had a previous buyer/contract, so the bank would have been involved already and probably gave an idea of price. Often these are marketed as "approved short sales," but as discussed below, the price can be a moving target and what is approved one day may not be an approved price in a couple of months.)
But the seller has to qualify for the short sale (show they have the necessary hardship), and provide a lot of financial documentation, and generally cooperate with the bank. Sometimes, sellers drag their feet or are just slow/disorganized with documents, and it slows things down. If the bank doesn't get documents they request in a timely way, they'll often close the file and whoever is dealing with the bank needs to start he process over again. A lot also depends on the specific bank or banks involved, the underlying investors for the loan(s), and whoever is negotiating with the bank (it may be the realtor, or a short sale processing company, or an attorney... you want to know before you go ahead).
Also, the bank will want to do their own valuation of the home (called a BPO, or broker's price opinion). Sometimes a house will be listed at a great, low price, but it's just the listing agent's wishful thinking. Or sometimes the bank is unrealistic about what they can get. So if a house is listed for $299K, there's no guarantee the bank will accept even a full price offer. They can come back and ask for $330K or $350K. And as discussed above, even a short sale has an "approved price," in a market where home prices are generally going up, the bank may change the "approved price" when a new contract comes in and a new BPO is done.
Aside from timing and uncertainty on price, you also have to understand that a short sale is "as is." So any home inspection items/necessary repairs are the buyer's problem. There's no one to negotiate with given that the seller usually has no money and the bank wants any money they have, and the bank is already selling at a loss.
Also, any title issues that crop up, or missing C/Os are also the buyers problem. And any hostile tenants living there that need to be evicted, also the buyer's problem.
The "as is" aspect of a short sale is why some houses require an all cash buyer or a rehab loan (house isn't mortgageable with a traditional mortgage).
Most buyers don't want to take on the hassle of a short sale. The pros don't really outweigh the cons, in my opinion. They are not the "great deal" that people think they are. At the end of the day you may be able to get a short sale for a little less than fair market value (depending on who the investor is that holds the loan, there are different formulas, but maybe 5% to 10% less than fmv). But you won't get a "steal" and the fact that you could be tied up in contract for months without knowing with any certainty if the sale will close (and having to take on potential issues that can be costly and time consuming to fix), should certainly be factored into whether it's a true deal.
I recently closed a short sale listing of mine in June and it was in contract for well over a year, pending bank approval. And I use a law firm that specializes in handling short sales and foreclosures to negotiate with the bank, and the buyer was an experienced investor who could assist in getting things done. However, there were numerous title issues (liens on the property) that we had to resolve, the bank was VERY difficult (and at one point closed out the file after we had approval, and made us start the process over, so there were multiple BPOs). The seller was very hard to reach and didn't really speak much English. We had missing C/Os for a major extension and a bathroom, and serious condition issues, so we needed a cash buyer. Against all odds, it closed, but it was a lot of work and aggravation for everyone involved.
I have another short sale listing that has been pending for a few months. A credit union holds the mortgage, so it's been slow going (we haven't even had a BPO yet). Even as a listing agent, I don't have much control over timing.
So I would seriously consider, as a buyer, pursuing a short sale. I always advise my clients about short sales at our first buyer consultation, and after I explain everything, they all agree that a short sale is not for them. Unless there are no other homes available in your price range, I would try to avoid them.
Let me know if you have any questions!
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