What is a short sale? A short sale is when a homeowner is underwater on the property and needs to sell the home. The homeowner accepts the offer, but the bank still has to approve the short sale. 

Every short sale is different. Some short sales are good and others are bad. There are definitely short sales that you should stay away from. 

For example, let’s say the property is priced at $500,000 and the owner accepts a $400,000 offer. You might fully execute the contract, but the bank still has to approve it. Short sales can actually take quite a bit of time because the bank needs do their research; after all, they are taking a loss on the property.

The bank will order a broker price opinion, or BPO, to see if the homeowner is selling the property for what it is worth. They will send an independent real estate agent to the property to do an evaluation. The bank will also make sure that the owner has some kind of hardship that has rendered them unable to make their mortgage payments. So, although the homeowner might accept your offer, it is up to the bank to give final approval. You can spend months in a short sale transaction only to have the bank turn you down. 

 

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There are a few signs that you should stay away from a short sale.


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So, how do you know if you should stay away from a short sale? There are a few signs you should look out for: 

  1. The property is priced substantially below market value. If the home’s market value is $500,000 and it’s priced at $300,000, then the bank is not going to approve that offer. If the property is distressed or uninhabitable, then you might be able to get away with such a huge price drop. However, the bank is already losing money, so they aren’t going to let you get into the home for $200,000 under the market value. 

  2. The house has multiple loans and liens. Every short sale is different. If the homeowner is only underwater on one loan, that is more likely to close than a property with two or three loans. If there are child support liens, tax liens, or other liens on the property, that short sale will take a very long time and likely fall through. Why? Each lender has to approve the loan. You might get the first loan approved and then get 45 days to close the sale; if it takes more than 45 days to get approval from the second lender, then you will have to go back to the beginning. 

  3. The listing agent is from out of the area. Many agents outside of our area don’t understand the market, so they underprice the property. Remember, if a property is underpriced, the bank probably won’t approve the transaction. 

  4. The agent does not have short sale experience. As you can see, short sales can be very complicated and take months or even a year to close. You need to work with a local agent who has short sale experience in order to move forward. 

Short sales are a good opportunity for you to get a good deal. Just make sure that you ask your agent the following questions: 

  1. How many loans are on the property? Are there additional liens on the property? 
  2. Does the listing agent have short sale experience? 
  3. Is the property priced close to the market value? 
  4. Is the listing agent here locally? 

If your agent is able to answer those questions favorably, then you can go ahead with the short sale. 

Finally, you need to consider whether the homeowner is ready to sell. If you see a short sale sign that says “Drive by only,” then that may mean the seller hasn’t fully let go of the property. They may need to sell the property but are not emotionally prepared to do so. In some cases, the homeowner might be trying to figure out a way to keep the home. You don’t want to get two or three months into a short sale only to discover that the homeowner is keeping the property after all. 

Ultimately, short sales can be very complicated. If you have any questions about purchasing a short sale property or if you are curious about any other real estate topics, just give me a call or send me an email. My team and I would be happy to help you!