While my client and I were waiting to hear from the bank,in response to our short sale offer, I received the following useful pointers for Short Sale buyers and their agents, provided by Trulia.
Roughly forty percent of the homes for sale on today's market are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed too. Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course.
Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.
When you’re buying a home (or selling one, for that matter), time is absolutely of the essence, but banks don’t have the same sense of urgency individual home sellers do, and while a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months after the seller has accepted the contract to get the deal closed.
Most Common Complaints of Short Sale & REO Buyers
Run-on (and on, and on) escrows
Avoid the drama by expecting your escrow to run long, and being pleasantly surprised if it doesn’t. Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost
of extending your low interest rate if rates are rising rapidly during the time you’re waiting for the deal to be done.
Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition. Fact is, many banks
would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.
Avoid the drama by working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with.
These transactions have an uncanny way of being delayed at the last minute - or never going through at all, through no fault of the prospective buyer. If you’re in contract on a short sale, you should take the point of view that you don't have a firm deal until you get the bank’s approval of the transaction. Make an offer on a normal home and you’re likely to know what the outcome will be within a few
hours or a few days, at the outside. If things take longer because the seller is out of town, the listing agent tells you that, and you at least know what’s going on.
Make an offer on a bank-owned property or a short sale? It could be days, but could also, easily, be weeks or months before you know what’s going on. No amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made. That “black box” into which your offer disappears at the bank level can be very frustrating.
Realize that working with the bank on the bank’s terms is unavoidable when you buy a
distressed property. Then, go into the deal with realistic expectations - including the expectation that the bank will drag its feet, despite expecting you to keep every deadline - and you’ll be less frustrated, and less likely to make poor decisions out of frustration. Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract.
