August 31, 2020
We’ve talked about short sales multiple times here on the blog lately due to the current nature of the changing economy and more specifically, the housing market. It was already known to be fairly unpredictable in California, but now, even more so. Now short sales are a relevant option more than ever for homeowners who are behind on their mortgage payments and need to downsize ASAP.
It’s a good option for a homeowner to avoid foreclosure, but there are also advantages to buying a short sale, also known as a “preforeclosure” home, which we talked about in Should You Buy a Short Sale Home.
If you decide to go ahead and put in an offer on a short sale home, you’ll need to know the buying process, what to expect during negotiations, and how to get your short sale offer approved and how long that will take. So now we’ll talk about how to get an offer to buy a short sale home approved.
When a home seller asks their bank about putting their home on the market as a short sale, the home will be listed on the Multiple Listing Service (MLS) as a short sale. After you find a home on the MLS (or you have your Realtor find it on the MLS for you) that you’d like to put in an offer for, you’ll need to have your Realtor give you a list of comparable home sales in the area.
You and your Realtor should study the housing market thoroughly, noting specifically what the going rate for a short sale is on similar homes to the one you are interested in. Your Realtor will likely put in an offer for you that is in line with the short sale prices in the area rather than what the seller and their bank is selling the home for (which is often listed for a lower than what the bank will actually accept for it).
When searching for short sale homes in the area to base your offer from, normally you would only use prices from short sales from the last six months, but as these are different times during the pandemic, you might need to shorten the time frame to short sales within the past 3 months or so, or based on your Realtor’s opinion.
Review the comparable listings with your Realtor and they will give you a recommendation on an offer price. Your Realtor will write up your offer, you’ll sign the offer, and then your Realtor will submit the offer to the listing agent on your behalf.
Keep in mind that banks will typically only consider buyers for a short sale that put in the higher offers, so don’t expect to be able to put in a low-ball offer (on an already low-priced home) and be successful with buying the home. Banks will list the house at a lower rate than what they would like to accept in order to get more buyers interested. So expect some competition while pursuing a short sale home.
Before you’ve entered into negotiations with the seller and the bank who owns the property, you’ll need to gather some materials to have ready during the meetings. Also, make sure your paperwork is turned in by the closing date or the bank may void your offer even after it’s in.
When putting together paperwork for a short sale offer, make sure you have these readily available during the time you put in your offer and during negotiations: a money deposit to show the bank that you are a serious buyer, the signed contract between you and the seller, a pre-approval contract with your mortgage lender (also be sure to be in regular contact with your lender during this time in case the negotiations start sooner than anticipated), and the research that you and your Realtor did on the going rates of homes, including short sale homes, in the area to use for negotiations.
The Realtor will submit all of their necessary paperwork to the bank to process and the bank will perform their due diligence. In order for you to move forward with buying a short sale, the home seller will need to accept your offer first. Then the bank will have to perform an initial approval of the home (which includes official home appraisals and inspections), and your offer. The bank may decide to negotiate back and forth until you both land on an offer they’re willing to approve.
It could take anywhere from 30 days to 4 months for the bank to perform all of the necessary appraisals and negotiations and then accept the offer.
There could be quite a few reasons why a bank may start negotiations with you only to cancel them. Possible reasons are: the bank cancels the short sale because the seller can’t prove that they can no longer afford their mortgage payments or the seller declares bankruptcy, which would void the short sale. Know that these are possible scenarios, but it’s more likely that the sale will go through if the bank has already started negotiations with you.
The typical time frame it takes for a bank to process your offer is anywhere from 30 days to 60 days. However, it wouldn’t be uncommon to take several months, as the bank will likely be wading through several offers. Ask your Realtor for typical wait times on processing short sale offers in your area to get a good time frame.
As we’ve mentioned multiple times before, the short sale process is anything but “short” in comparison to regular home sales. If you are determined on buying a short sale home, or a home in particular that happens to be on the market as a short sale, then it could be worth the wait.
Your Realtor should check in regularly with the bank to check progress on the paperwork and negotiations. This should be done on a weekly basis. Also, be sure to check in with your Realtor just as often in order to continually be aware of progress and explore your options as needed.
If the bank officially approves your offer, you will then enter into escrow. The bank will continue processing your paperwork so that you can close on your new home. The time it takes for the bank to finish processing all the paperwork may take a few months, but it is possible it may only take a few weeks depending on which bank holds the loan.
Your Realtor will do the heavy lifting for you and keep you informed of where you are in the process of closing on your home. Their expertise and experience with short sales is a necessary asset for buyers (and sellers, as we talked about in How to Sell Your Home as a Short Sale in 2020) when dealing with banks during short sales.
If you’re interested in buying a short sale home, you’ll definitely want to work with a Realtor who has experience with short sales and knows all of the rules and best practices. They’ll be able to help you figure out the best offer for you to put in for the home you want and how to negotiate with the bank to your best advantage.
We also know that these are stressful times and there are concerns about how to buy a home during a pandemic, so be sure to read the Coronavirus Real Estate Guide to learn how to stay safe during your home buying journey.
When the home you want to buy is listed as a short sale, the buying process can be difficult when factoring in all the added negotiations and requirements. Make sure you get an experienced Realtor on your side so you don’t have to try to do it alone. If you’re looking to buy a home in the Sacramento area, contact us soon at Quantum Real Estate.
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