What To Know Before Buying A Short Sale Property

What Every Buyer Should Know About Short Sales Before Making an Offer

Definition:

In a short sale, the seller aims to sell the property for less than the amount owed to the bank. The bank, facing a loss, must approve the offer. We first negotiate directly with the seller. After reaching an agreement, we submit the offer to the bank for approval. This approval process can take time.

The bank typically requires 2-5 months to approve an offer. Meanwhile, we can explore other properties. We avoid placing a deposit or opening escrow on a short sale until the bank approves. If we find another home, we can pursue it and abandon the short sale. Our commitment begins only after bank approval and escrow deposit.

Short Sale Pitfalls:

1. Sellers must prove a financial hardship to qualify for a short sale. Without a completed hardship package and bank confirmation, a short sale may not proceed. New listings often lack this step.
2. Banks typically delay property valuation until receiving an offer. Many agents list short sales below market value to attract quick offers. The listed price rarely reflects the bank’s acceptable price, which is often higher.
3. No guarantee exists that the bank will accept our offer.
4. The seller and bank may continue marketing the property and accept better offers. If a higher offer emerges, they might allow us to match it or simply choose the better offer.
5. Multiple loans on a property complicate matters. Each lender, unpaid in full, must approve our offer. If any lender rejects it, the deal cannot proceed.
6. Most sellers in short sales stop making payments, risking a Notice of Default. The property could face foreclosure or auction, even after our offer or bank approval. Inspection and appraisal costs may not be recoverable if the property is sold at auction.
7. After bank approval and escrow opening, note two key points:
   
   1. Banks often refuse to cover expenses like Home Protection Plans, termite repairs, or HOA transfer fees, as they’re already losing money.
   2. Banks rarely agree to pay buyer closing costs, making such negotiations challenging.
   3. If you cancel escrow within contract terms, recovering your deposit may be difficult if the seller is unavailable to sign release forms. Thus, we recommend a deposit no larger than $1,000. Be prepared to lose this deposit in worst-case scenarios.

Good News from Your Thousand Oaks Realtors – Short Sale Approvals:

Often, buyers move on to other properties before a bank approves a short sale. If this happens, the home may become an Approved Short Sale, with the bank’s approved price known. Offering at this price can shorten approval time to 2-4 weeks. Other short sale risks remain, but the wait is significantly reduced.

This overview highlights the complexities of short sales. You can secure a great home at a good price, but additional risks apply. Approach the process with full awareness.

The following pages will simplify your home buying journey: