Are You a Buyer Looking to Purchase a Short Sale?
Last week I shared a great success story, where my clients, through patience and diligence closed on their first home purchase. I thought it was only fitting to dive in a little deeper because it seems that there is a significant amount of confusion when it comes to purchasing a short sale. There are many misconceptions when it comes to this type of transaction, so below I have provided some information to potential buyers so that they may be better equipped to make a sound, fully informed decision. If you are looking to purchase a short sale, understand that it is not the same as a normal sale and the approach is very different.
1. On average, getting a short sale approval can take 60-90 days.
With a normal sale, there is a buyer and a seller, and negotiations are rather straightforward. With a short sale, there could be mortgage insurance and an end investor on the loan as well as the servicer, which means it has to go through three different processes. Chase could be the servicer on the loan but they do not actually own the loan, so, the short sale has to pass their guidelines, then go to the mortgage insurer if there is one, then to the end investor like Fannie Mae or Freddie Mac. The complexities increase if there is a second lien-holder because there is yet another involved party. If you are a buyer that has a set timeframe, I would strongly implore you to look at other houses. My last two short sale transactions in Seattle took 9 months & 4 months respectively from offer to closing.
2. There is a general assumption that you can purchase a short sale for 40-50% under it’s listed price.
Hopefully, if the agent who is handling the sale is experienced, they will have already received an approved list price from the bank by the time you are interested in making an offer. Typically, there is a slight margin that the bank is willing to negotiate, but will not, in almost every case, take 40-50% off of that price. On that note, short sales tend to be in better condition than an REO (foreclosed property), which explains why you can pick up select REO properties for a huge discount. Keep in mind that the laundry list of repairs may very well offset these savings vs. a short sale being sold at a slight market discount with improvements already made. The question you have to ask yourself - am I more inclined to pursue Sweat Equity or Patience Equity?
3. Short sales are a very difficult process and it takes a qualified person to handle the intricacies of this type of transaction.
This type of transaction takes a very experienced agent on the listing side as well as the buying side. It’s imperative to have an experienced Realtor advocating for your best interest before moving forward with a short sale. As a Realtor, it’s my duty to thoroughly research each specific short sale to determine the likelihood of successfully closing before ever submitting an offer on behalf of my clients. There are several different types of short sale processes and each bank’s process is somewhat different; it takes a professional who has had experience with all of these different types of short sales to help facilitate a successful transaction.
4. In most short sale transactions the properties are sold “as-is” and no repairs will be made.
Although there are some exceptions to this rule, generally speaking, short sales are sold “as-is” and no repairs will be made even if they are found during a home inspection. In most short sale transactions the bank will require both the buyer and seller to sign an addendum that states the property is being sold “As-is” and no repairs will be made. I would still recommend a home inspection 100% of the time to ensure you know firsthand what you are buying.
These are just a few quick tips for buyers who are looking to purchase a short sale in Seattle, as they are an increasing reality in every market, and if you have the patience, you may be able to get the home you are searching for at a discount!