Short Sale-Buyer

Before You Buy a Short Sale

A short sale is defined as a property for sale in which the seller's lender is willing to accept a discounted payoff to release an existing mortgage. It is often referred to as being “upside down” since the seller owes more than what the market will bear. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.

There are several thing to be aware of, the seller does not need to be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen and they meet the criteria of financial hardship.

Check the Public Records

It is highly recommended you do your research before making an offer to purchase a short sale. As your agent we can find out who is on title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.

If there are two loans, this can create more of a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $460,000 on the first and $75,000 on the second, offering $460,000 leaves nothing for the second. The first will need to offer something to the second to gain its cooperation.

Hire an Agent with Short Sale Experience

It's one strike against you if the listing agent has never handled a Short Sale, but it's even worse if your own buyer’s agent is neither certified as a Short Sale agent and has no experience in that arena. You need an experienced Short Sale agent.

An agent with experience in Short Sales will help to expedite your transaction and protect your best interests. You don't want to miss any important details due to inexperience or to find out your transaction is not going to close on time because no one has followed up in a timely manner.

Qualifying the Property and Seller for a Short Sale

A lender is unlikely to agree to a Short Sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. In a short sale, the seller never receives any money because the lender is losing money.

Submit Documentation and Purchase Offer to Lender

Once the seller has accepted your offer it is packaged up with the seller’s financial information and sent to the lender for approval. Remember you do not have a deal until the lender accepts and you have the option to continue looking for other properties and cancel anytime before the Short Sale is approved.

In addition to reviewing the seller’s financial information, the lender will want to see that you have your own financing (loan or cash) available and you are preapproved. A preapproval letter and proof of cash funds (earnest money) is required by the lender.

Give the Short Sale Lender Time to Respond

Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel. It is recommended to allow at least 90 days as most Short Sales take from several months or more. Some lenders submit short sales to a committee, but most can make a decision within two to three months.

Understand Short Sale Commission

Regardless of the commission the seller has agreed to pay, the lender is actually going to be paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your buyer's agent.  

When you sign a buyer's agent agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots. It is all negotiable.

Reserve the Right to Conduct Inspections

Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs. It is extremely important that a buyer obtain a home inspection.