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What Happens In A Short Sale Home Purchase
Dated: January 29 2016
by Rae Goepfert, Realtor®, CMRS
Whether you are an investor, or a first time home buyer, getting through the short sale process can take longer than the traditional sale. The Short Sale process may take months to complete. This week I will share from a recent Short Sale transaction from the Buyer’s side of the deal.
What is a Short Sale?
A short sale occurs when a Seller is selling their property for less than their loan amount. The Creditor, their lender, determines if the Seller qualifies for a Short Sale, usually due to a hardship (ie divorce, loss of job or relocation). A short sale prevents a foreclosure, however both have a negative impact on credit.
As a Buyer, you may think a Short Sale is a bargain. While that may be true in some cases, the Short Sale purchase process is different and submitting a purchase contract (a.k.a. offer) on these properties is not a guarantee you will get that deal on your dream home. While a traditional sale can be completed in an average of 30 to 45 days, the Short Sale may take months, sometimes years.
What happens when the Seller receives an Offer on a Short Sale?
As a Buyer, you find a property for sale at $70,000. You submit a purchase contract for $70,000, along with any supporting documents as requested by the Creditor, including any addenda, pre-qualification (if a loan is involved), or proof of funds (for cash purchase).
The Seller submits your offer to their creditor and the waiting begins. The creditor will review the offer and if they agree, the Seller sends the Buyer an “Agreement Notice.” The Buyer and Seller are now under contract and the buyer’s inspection period begins. Alternately, the creditor may request additional funds or reject the Short Sale. In our case, the creditor wanted additional funds and the Buyer chose to not move forward.
What if you Still Want to buy a Short Sale?
Once you have located a property, a great Real Estate Agent will help you navigate the Short Sale process.
We submitted an offer on a property that needed a considerable amount of work. After the property was appraised, we countered with a slightly higher offer which we felt confident the bank would accept. After waiting a short 45 days the bank indicated they would only accept an offer closer to their BPO (Broker’s Price Opinion).
The Short Sale Addendum states that the sale is “Contingent Upon Acceptable Short Sale Agreement.” The Seller and their creditor must agree on the sale price. If no agreement is reached the Seller notifies the Buyer and if the Buyer does not agree the contract is deemed cancelled.
In this case, my Buyer decided to cancel.
In another Short Sale transaction, the Buyer waited 90 days to find out the Creditor had rejected their offer. The Buyer chose to cancel and move on. Fortunately, another Buyer came in with a price closer to what the Creditor would accept. That process took an additional 5 months to complete. So, you can see that a Short Sale takes time and patience.
What Happens when you receive a Short Sale Agreement?
If the Creditor and Seller agree to the Short Sale amount, the Buyer provides their earnest money, escrow is opened and the inspection period begins. The rest of the purchase process proceeds in accordance with the Purchase Contract.
The Buyer should refer to the “Buyer Advisory” for items to check out during the inspection period. The Title company will perform a title search for any potential issues with the property such as additional loans, liens, past due taxes etc. In addition, just as with a traditional sale, the Buyer needs to acquire home owner insurance, secure their loan (where applicable) and check out everything that may be a possible concern to them during the inspection process. As I mentioned in a previous blog, the inspection should not be skipped.
I hope you found this helpful. Please feel free to comment or share.
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