Q- We have been trying to buy a house for over a year and all we can find are short sales. We have made offers on two, which have both failed. Our agent doesn’t want to show us any more short sales, but in our price range that’s all we seem to find. How can we make an offer and ultimately purchase a home successfully?
A-Short sales are very frustrating to buyers, sellers and agents. Although the process has gotten better over the last few years, it’s still light years from being an efficient or easy process to negotiate.
As a buyer, both you and your agent should understand how the short sale process works. You will need to know what the seller’s bank or banks will require and how competent the seller’s agent is. You should also brace yourself for a lengthy wait and as you already know, short sales often fail.
The typical short sale takes from one to six months to get processed and approved. If there are multiple lenders, a bankruptcy or a home owners association involved, things could take longer.
Most realtors follow a similar process when assisting buyers. The first step is to interview the buyer in order to establish their needs and desires. Many factors are considered such as bedrooms, bathrooms, size of house, amenities, neighborhood, schools, commute routes, and obviously price. All buyers should have completed the loan pre-approval process if they are planning to finance the home. Often buyers want to know why they should get pre-approved before choosing a home:
The pre-approval is for three reasons:
1. Interest rates are at historic lows and you may be able to afford more home than you think.
2. You don’t want to fall in love with a home that’s out of your reach.
3. Sellers won’t accept your offer without the pre-approval letter.
The better informed you are about every facet of the home buying process will empower you to make better decision’s and to be able to make the decisions faster.
Once homes are located that meet the buyers requirements, a time is set to view the selected homes. When a home is selected to purchase, the agent should research the recent sales and current available inventory to establish a fair price. Value adjustments should be made to account for condition, improvements, pools, premium lots, views etc.
This is where a short sale, and a regular sale start to differ.
In a regular sale, once the value-offer conversation is concluded, your agent will write up your offer and present it to the seller.
With a short sale, there are a few more steps.
First, your agent should interview the seller’s agent.
- They should find out who the lender or lenders are, and if there are any home owners association liens. Knowing who the lender or lenders are will give you a sense of how long the process will take. Every lender is different.
- Have they already submitted the short sale package? Some lenders will pre-approve the short sale, making the timelines much shorter.
- How experienced are they with short sales, and are they going to personally process the sale, or does their office have an in-house negotiator? I would ask what percentage of short sales they close.
Be aware that some offices outsource short sale negotiations and charge the buyer a fee for this service.
Your Realtor should also take one additional step.
When the bank receives a short sale package, one of the first steps they undertake is to order a broker price opinion (BPO). A BPO is basically an inexpensive appraisal and will be performed by a realtor. The bank will use the BPO to determine if your offer falls within their financial guidelines. Our office conducts a mock BPO on all short sales to make sure that your offer falls within the bank guidelines and doesn’t get rejected on price.
The bottom line is that there is no absolute formula to insure a short sale purchase will be successful. You can hedge your bet and multiply the potential for success by enlisting an experienced Realtor. If your Realtor truly understands the short sale process, and finds a home that is represented by a competent and knowledgeable Realtor, then your chance of success is pretty good.