So you see the new listing that just seems too good to be true. The pictures look good it has everything you want and it's below the other active listings. You talk to your agent and the four words you hear are "it's a short sale".
What is a shot sale? It is when seller owes more on a home than its market value. The lender(s) have to decide if they will let the property go and how to deal with the negative equity.
There are several things to consider when looking at a short sale and embarking on the offer process:
- Has the short sale already been approved. Some lenders will approve a net proceed before the home is even listed so that buyers will feel more comfortable making an offer. Some lenders will not start the approval process until an offer is ratified by the buyer and seller.
- Has the seller submitted all required paperwork? Many lenders will only consider a short sale if there is financial hardship. Submitting the required short sale package will show the seller has taken the time to explain their situation and collect all required documentation.
- Do any of the mortgages on the property have mortgage insurance? If yes then the lender may want to wait for foreclosure so they can file a claim and receive a payout.
- Is your offer below what properties are selling for? The lender will solicit the opinions of other REALTORS® as to what the home would go for on the open market or as a foreclosure listing. If it is in the lender's best interest to end up the property in order to sustain a smaller loss, they will.
- Is more than one lender involved? When a home goes to foreclosure normally the lender holding the first and larger trust ends up owning it. The second lender will usually want the short sale so they can recoup some of their initial investment. If the property goes to foreclosure normally the second lender receives nothing.
- What stage of default is the loan(s) in? Most of the time when a short sale is listed the seller is already behind in their payments and has no plans to catch up. Unless arrangements have been made otherwise, the property could go up for foreclosure while you are waiting to get an answer on a short sale.
The banks can take months to come up with an answer. They are overwhelmed and the properties they own usually take priority.
I have not personally closed a short sale but from reading the facts, showing short sale listings and talking with some of the listing agents handling them, I have come to the conclusion that it's mostly chasing a slim chance at a sale. Many buyers wait it out to see if the lender ends up buying the property back and listing it as an REO property.
