It
seems that there is a significant amount of confusion when it comes to
purchasing a short sale. There are many misconceptions when it comes to this
type of transaction, so below I have provided some information to potential
buyers of short sales. If you are looking to purchase a short sale, understand
that it is not the same as a normal sale and the approach is very
different. There could be several parties involved and issues that are
unknown to the buyer and buyer’s agent that can affect the transaction. If you
are looking to purchase a short sale here is some helpful information.
1. On average, to get a
short sale approval, it can take 60-90 days.
There could be mortgage insurance
and an end investor on the loan as well as the servicer, which means it has to
go through three different processes. Bank of America could be the servicer on
the loan but they do not actually own the loan, so, the short sale has to pass
their guidelines, then go to the mortgage insurer if there is one, then to the
end investor like Fannie Mae and Freddie Mac. If you are a buyer and can’t wait
at least 60-90 days for an approval and then another 30 days to go to closing,
then you need to look at other houses. The worst thing you can do is tie up a
house that is in a short sale with no intention of being patient while waiting
for a short sale approval. Approvals can come sooner than 60 days, but industry
standard is at least 60 days to get an approval or denial.
2. There is a general
assumption that you can purchase a short sale for 40-50% under its listed
price. In
a short sale the bank comes out and does a valuation of the property and will
expect a slight discount, but will not accept a huge amount under the market
value.
Hopefully, if the agent who is
handling the sale is experienced, they will have already gotten an approved
list price from the bank by the time you are interested in making an offer. The bank will usually
be willing to negotiate on that price, but will not, in almost every case, take
40-50% off of that price.
To that point, you may be able to get a reasonable deal on a
short sale, though it will not be, in most cases, as much of a deal as you may
be able to get on an REO (foreclosed property). Also to that point, most short
sales will be in better condition than an REO. When you look at the potential
repairs a comparable REO needs and the time and expense it can take to do those
improvements vs. a short sale being sold at a slight market discount with
improvements already made, the investment could even out. There are REO
properties that can be picked up for a huge discount, but require massive
repairs that a comparable short sale may not require.
3. Short sales are a very
difficult process and it takes a qualified person to handle this type of
transaction.
With this
type of transaction it takes a very experienced agent on the listing side as
well as the buying side. Make sure before you move forward on the transaction
that the listing agent has ample experience dealing with these types of
transactions, or you could be tied up in a contract for months that never goes
to settlement. There are several different types of short sale processes and
each bank’s process is somewhat different; it takes a professional who has had
experience with all of these different types of short sales to help facilitate
a successful transaction.
4. In most short sale
transactions the properties are sold “as-is” and no repairs will be made.
Although there are some
exceptions to this rule, speaking in general, short sales are sold “as-is” and
no repairs will be made even if they are found during a home inspection. In
most short sale transactions the bank will require both the buyer and the
seller to sign an addendum that states the property is being sold “As-is” and
no repairs will be made.
These are just a few short
pointers for buyers who are looking to purchase a short sale as they are a
reality in every market, and if you have the patience you may be able to get
the home you are looking for at a discount!
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