RISMEDIA, August 17, 2010—Real estate professionals nationwide are calling 2010 “the year of the short sale,” where homeowners who owe more on their properties than what they are worth sell at deeply discounted prices—with the blessing of their lender.
Here is how to go about successfully buying a short sale:
1. Search for short sale properties
Most short sales are listed by real estate agents. You will find these listings on local websites and in MLS feeds. Some lenders have complained about advertising that identifies the home as a short sale, because the lenders feel it puts them at a disadvantage when it comes to home pricing. This is accurate, as buyers generally offer less when the property is advertised as a short sale.
Read the listing carefully. Agents slip in words that identify the listing as a short sale. Look for the following terms:
• Subject to bank approval
• Notice of Default
• Give the bank time to respond
• Preapproved by bank
• Headed for auction
2. Select a real estate professional
Professionals with short sale experience can help you navigate the short sales process in your local market. The buying process is often far more complex—and far longer than typical sales–so a trained ally on your side can make your experience successful.
3. Investigate the mortgage and liens on the property
Here’s where a good short sale real estate agent is worth his or her weight in gold. Uncover how much the mortgage is worth. Find out how much the current owners paid and when. Find out how many liens are on the property. Find out which lender is the primary lien holder. Research comparable sales in the area.
4. Have a home inspection
Short sales are typically sold “as is,” with no contingencies allowed. That short sale is no bargain if you discover—after the closing—that it requires major, unexpected repairs. A thorough home inspection will provide a clear view of the home’s condition, allowing you to make educated decisions on whether or not to purchase.
5. Write a complete offer
Remember, the lender—not the owner selling the property—is calling the shots and decides whether your offer will be accepted, rejected or countered. Helping the lender, whose agents may be overloaded with a glut of short sales, fully understand the financial picture will support your bid. Include the following materials with any short sale offer:
• Cover letter
• Signed owner/borrower short sale purchase agreement
• Seller hardship letter
• Seller payroll stubs
• Two years of seller tax returns
• Market comparables
• HUD-1 closing net sheet
• Repair cost estimate
• Pictures of property
Like any real estate transaction, successful negotiation is required to strike a deal. If the lender rejects or counters your written offer, you’ll have to negotiate with the lender by making a higher offer. Be prepared to offer more money to close the deal, or to walk away if it doesn’t make financial sense.
7. Be Patient
Short sales, which have increased in volume and frequency, are overloading some lenders. Be aware that processing and decision-making times for some lenders can be quite long—up to a year or more. Decide if you have flexibility in your timing, and if so, know that you may be waiting for awhile.
Dan Steward is president of Pillar To Post Home Inspection.
For more information, visit www.pillartopost.com.