The state of the current real estate market has made short sales more prevalent than ever before. When I started selling real estate five years ago, I rarely encountered a short sale. This past Sunday while out with buyers, two of the seven homes we previewed were short sales. Having just finalized a short sale as the listing agent, I must say that the listing agent must be in constant communication with the bank, as well as the buyer’s agent and the seller’s attorney. Short sales take more time and effort than a regular sale, but good communication skills from the listing agent will facilitate a smoother and possibly faster transaction.
What Is a Short Sale?
A short sale is when the property’s value is less than what the owner owes their lender. Although many homes are currently down in value, a short sale may only occur when the owner can prove some kind of extenuating circumstance that has negatively affected their financial situation. A short sale may help homeowners avoid further collection activity or foreclosure.
When analyzing short sale eligibility, the value of the property, the cost of foreclosure, and the owner’s financial condition are taken into account by the lender. Sellers must submit a hardship letter explaining why they can no longer afford the property, along with bank statements, and a financial worksheet noting all income and expenses.
Should I Buy a Short Sale Property?
If you are considering buying a short sale property, there are several things you should consider. There is a notion that you can get a great deal on the price. In many cases you can pay less than market value, but short sales require a tremendous amount of patience from all parties involved in the transaction. A seller can accept your offer, but their lender must approve the sales price. Lender approval requires having the property appraised, and the entire process can take any where from several weeks to several months. If your lease is up in a month, I do not recommend attempting to purchase a short sale property. The buyer has no say in when the closing will occur. The property will close once the lender approves the sale. Wells Fargo Home Mortgage estimates that the total short sale process takes approximately 37 business days. Typically, short sale approval is good for 30 days. If the closing fails to take place within the given time frame, the entire process may need to start over.
What Does The Buyers’ Agent Have to Do?
When representing a short sale buyer, a Realtor must be patient but diligent. Providing the listing agent with as much information as possible at the time of the offer is essential. Be sure to include a pre-approval from the buyers’ lender for this specific address or proof of funds if it is a cash offer. Any time there is information missing from the package to be sent to the bank, days could be added to the transaction’s timeline. A listing agent should be in touch at least once a week with an update. I don’t recommend calling them every day to obtain information, because they are just as anxious to hear from the bank as you are. If you are representing a buyer and there are multiple offers on the property, I advise you to treat it like any other multiple offer situation. Provide the listing agent with the buyers’ highest and best offer. There may not be an opportunity to counteroffer, so go in strong at the beginning.
I’ve heard agents worry that in a short sale they would not receive their commission. This is not typically the case. Banks do place a cap on the amount they will pay out to for Realtor and attorney fees, but the bank is not looking to rob you of your commission. There is a net proceed amount that the bank must receive in order to approve the transaction. If the commissions, tax prorations, title fees, transfer taxes, and any other fees add up to more than the amount that the bank will approve, the Realtor commissions and attorney fees may be reduced in order to ensure that the property closes. If the sales price covers the spread between what the bank receives and all of the additional fees, your commission will be what was represented in the MLS.
Find an Experienced Team
Whether you are selling a home and short sale is your only option, or you are considering buying a short sale property, I highly recommend surrounding yourself with an experienced team. A real estate agent and real estate attorney who have short-sale experience will not only make the entire transaction easier, but it will also increase your chances of closing the sale.Email This Post To a Friend.