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What to Expect (And Look Out For)

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A Short Sale is a home where the seller owes more on the home than the current market value.  Therefore, the bank has to approve a reduced payoff (short payoff sale), or the home cannot be sold.   It should be called a Long Sale because it takes a lengthy amount of time to process.  Generally it is about eight weeks for the bank to get to the offer and make a decision whether or not to accept it or counter-offer and another 30 days after that before you close.

If you want to make an offer on a home that is a Short Sale, the good deal you're likely getting comes along with a handful of complexities. We've put together some helpful information to help you as you work with your Red Edge Agent on placing a bid, and hopefully purchasing, the Short Sale home of your dreams.

The Price is Right

Once the bank finally reviews the offer it hires an appraiser to provide opinions on the fair market value of the home "as-is." The listing price was determined by the seller's listing agent and generally they have also taken the same comparable neighborhood sales into account as will the appraiser, so hopefully when the bank gets to the offer that they will accept it, but sometimes they counter-offer higher than list price.

Because the bank will already be taking a loss on the sale of the home, it may be reluctant to agree to a credit for repairs. Remember that some Short Sale sellers often lack the resources to maintain full upkeep of the home. These properties typically need some TLC - ranging from new paint or landscaping to more significant repair issues involving roofing, plumbing, electrical, structural, etc.

However, the price is usually better than you can buy the home if it ends up in foreclosure as the number of buyers willing to wait for an approval is limited compared to a foreclosure which can be sold quickly because the bank already owns it and has already performed their due-diligence. 

The Bank has the Final Say

When the seller accepts your bid that's only the first step toward buying your home - you'll also need the bank to accept it.

Until the contract is formally accepted by the bank, you should consider the seller's acceptance as a simple indicator that your offer is under consideration.

Your contract is not final until the bank decides that it is willing to proceed with it.   This is called Third Party Approval.

Contract Dates Can Change

Sometimes it takes awhile to hear from the bank (eight weeks is average), and the dates entered into your contract can (and likely will) be changed.  You should:
  • Be prepared to be flexible about when you'll actually go into contract, and when you may ultimately close and own your new home.
  • Have the funds dedicated for your Earnest Money Deposit and Down Payment readily available and liquid so that once a bank tenders its approval, you're able to meet your financial obligations under the contract in a timely fashion.
     


You could Lose Out on Some Upfront Money

While waiting for the bank to get to the offer you will still have to proceed with your loan and inspection as when they get to the offer they will want to know that you can close in two to four weeks.  If you wait until after they get to the offer your loan company won't have enough time to order the appraisal and complete the loan process.  

The appraisal will have to be done while you are waiting for an answer (average of $350 depending on your lender) and the home inspection and termite check will already have to be completed as well (average $350).

If the bank isn't realistic about the current market value of the home and counter-offers a much higher amount than you want to pay and you decide to opt out of the deal then you lose out on the above-mentioned monies.

Delays and Associated Problems

When purchasing a Short Sale, you should expect delays. In extreme cases it can take up to six months to get approval from the bank. As a potential Short Sale buyer, it's important to keep the following in mind:
  • Loan Implications: Delays in a purchase process may affect your loan terms. Most loan rates can be locked in, but the locks do expire. Consult with your lender specifically as to the time frame for your loan locks and opportunities for extensions, if necessary.


Foreclosure

If the seller of the home on which you've made an offer is in the foreclosure process there is always a risk that the home could go to a foreclosure sale before you've completed the Short Sale process. Some things to ask:
  • Has the seller received a Notice of Default from its bank?
  • Has a sale date been scheduled?
  • Has the seller requested an extension or continuation of the sale? Can we request a continuation of the sale?

 

If you would like to speak with Mike Hall, Principal Broker/Owner of Red Edge, about the Short Sale process then fill out this contact request form, call 502-509-5131, or e-mail to Mike@RedEdgeLive.com.

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