Yesterday I received the following question from a reader thinking about buying a short sale:
My husband and I are interested in buying a home in the Snoqualmie Ridge neighborhood. Many/most of the homes (In our price range) appear to be short sales.
Do you have any suggestions or tips when attempting to purchase a short sale?
First, let me point you to the write-up I posted of my own experience buying a short sale. It won’t be a road map of every challenge you might encounter, but hopefully you will find it at least somewhat interesting and informative.
Second, here are some tips that I would give to anyone thinking of buying a short sale:
Be patient! The process is likely to take quite a while. If you need to find a home quickly, you will probably want to avoid short sales.
Look for a proactive seller. There are many things that a seller can do to help the process move more smoothly and quickly. In my case, the sellers had spoken with their lender, received the lender’s short sale packet, and submitted the initial documents to the lender before even listing the home. This helped things move along quickly once they accepted our offer.
Find out if the seller is eligible for aid. Again, in my case, The sellers were eligible for the Home Affordable Foreclosure Alternatives (HAFA) program. This helped things move along quickly since there were specific time limits enforced by an outside agency.
Work with just one bank, if possible. Many (most?) sellers attempting a short sale of their home did not make a 20% down payment when they purchased, but instead used two loans, one for 80% of the purchase price and the other for up to the remaining 20%. In this situation, they seller’s loans may be with a single bank or they may be with two different banks. When there are two banks involved, your chance of successfully closing a short sale drops dramatically.
Those are all the tips I’ve got, but perhaps there are some agents or home buyers or sellers here who have been through the process that can offer additional insights. If so, let’s hear it in the comments.
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I See SE King County Newberry Realitor’s Advertising Sign on Kent Kangley
Flaunted over 1200+ short sale listings yesterday.
Lots to pick and choose from apparently now. Using Tim’s advice and not being too picky about the house and its location should land you a good workable deal.
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The third part of this blog piece deals with short sales.
http://www.trulia.com/blog/kary_l_krismer/2011/12/buying_an_reo_foreclosure_distressed_property
I’d pay particular attention to the third item: The seller may be more likely to back out. Based on that, I tell clients not to give notice to their landlord until they close.
I would also note that you may end up paying things you wouldn’t ordinarily pay, simply because the out of state bank doesn’t know what’s customary here, or a lien here (e.g. water bills).
I’m not so sure the second is all that big of a problem now, but it would obviously depend on the bank. I have one where the second has been more responsive than the first. And I know another situation not involving a short sale, where the second made the owner an offer that was pretty attractive without a short sale, prior to a foreclosure of the first! Stated differently, some of the seconds have become more realistic.
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RE: softwarengineer @ 1 – Odd, I’m not seeing that many active SS listings in King County. I wonder what area they are purporting to cover, or if they are also including the pending short sales since you can outbid or be a backup????
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I teach a class on this topic written for Realtors who represent buyers. When I get a chance I’ll circle on back and add in some of the best tips.
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Another tip from Been There, Done That. Find out how many short sales the seller’s agent has closed successfully. You do not want a n00b who may not have done a good job screening the seller and the lender. A seller’s agent who is experienced with short sales will not take on a situation that is unlikely to close. Our seller’s agent told me up front he had sold 20-some short sales and closed them all, and ours closed two months from the first offer.
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We went and looked at this short sale
http://www.redfin.com/WA/Kirkland/12941-76th-Ave-NE-98034/home/282243
It looked to good to be true. The showing “requirements” were screwy. Only shown during very limited hours and a brief open house on the first weekend it was listed.
The house needed cosmetic TLC, but was darn nice for the price/location. Listing agent was a flipping moron. The only thing the short sale listing is for is delay the inevitable.
There are three mortgages, 3rd is a hard money lender. There were multiple offers… then the seller decided to go hunting for a while and would return in a couple of weeks to review the offers. No pre work was done. The listing agent was a bonehead and did not insist upon the seller contacting their lenders ahead of time.
What a joke. There were multiple agents that went through, probably 50+ homebuyers who showed up for the mayhem and the house will just end as a foreclosure.
The seller is gaming the system. The listing agent took the listing at any costs. The agent is being played like a fiddle.
A waste of a lot of peoples time.
So my hint would be: Do you OWN research. Know how many liens there are, know the listing agents qualifications, have a good advocate on your side (lawyer, friend, broker) on your side. One that has been through a short sale or 100. Ask the listing broker if the sellers are committed to seeing the process through. Does it look like they are trying to sell or spin the wheel a while longer. I would not be ashamed to ask to see proof that the sellers are doing their part.. The easy part is making the offer. The hard part is getting everyone to take the 100 steps needed to make the deal happen.
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More fun picking up toothpiks with your ass cheeks then being involved in a short sale…But, hey…They are here for many years to come because as we all know….They are all coming back to their proper value!
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By BelNotRenter @ 5:
This was good advice a couple of years ago. Now the short sale negotiator is the important party to know about, assuming one is involved. Unfortunately there’s no real way of determining independently how much experience the short sale negotiator has–they aren’t listed as data in the NWMLS system.
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RE: Howard @ 6 – They may be gaming the system. I’ve stated one of the advantages of attempting a short sale is possibly delaying a foreclosure.
That said, it’s usually not possible to contact a lender prior to actually getting an offer. FHA is an exception, and there are others, but that’s been one of my complaints about short sales for years. Also, the hard money lender might not be that difficult to deal with. They are likely a smaller entity, and might be the easiest party to deal with. I did a short sale several years ago with a hard money lender, and they weren’t a problem at all. It was in fact very useful to have them because they paid for some emergency repairs after some flooding. Getting a bank to do that would have been a PITA. I’ve had banks stiff me on things they said they would pay for.
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In the current market, there are so many buyers looking into short sales, it will be hard pressed for anyone to get a bargain. Many bargains are reserved for insiders or related parties – buyers predetermined before listing.
Even if you are lucky enough to get your offer accepted, it can take months before the bank looks into it. In the meantime, the loan may be sold to a different lender and the process starts all over again. When the bank finally looks into it, they may counter you with a higher price based on their BPO (which often results in re-listing with a higher price.) So chances of you getting a great deal are not as high as you think.
Finally, you are buying the property “as-is” and will have no recourse in these sales. Unless you are an investor, my advise is to stay away from these properties. They are not for the faint-hearted.
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