I meet with home buyers every day looking for a deal and curious if a short-sale purchase will provide them with savings over a traditional arm’s length transaction. A short-sale is a sale when the seller doesn’t have enough equity or cash to pay off the loan and the other fees associated with selling a home, hence they are “Short” on the payoff.
A short-sale requires the seller’s lien holders to agree to take a “Short” payoff, or in other words, waive or accept an unsecured note for part of the payoff amount.
Here are helpful parameters to decide if a short-sale is a viable option for you:
- No time frame whatsoever. Short-sales can take months and even years to be approved by the sellers lender.
- No attachment to the outcome. If the short-sale is not approved, will this have a negative impact on your life?
- No attachment to current interest rates or home prices. If the sale is not approved and home prices or interest rates have risen, will this have a negative impact.
- Are you a patient person? You may not get updates for weeks at a time.
- Are you comfortable with risk and do you have money set aside for repairs and fees that may need to be paid on behalf of the seller just to facilitate the transaction?
If you are a cash buyer or a buyer with huge down payments, an investors or a move-down buyers, a short-sale might be a plausible course of action. First-time buyers, move-up buyers or anyone on tight budgets or time-table should not consider a short-sale.
Here are some additional insights on Buying a Short-Sales
Some sellers may advertise a short-sale when in reality they don’t even qualify for one with their lender. Unfortunately, whether the lender will approve the seller’s hardship is often unknown until the seller and a buyer reach agreement and that agreement is presented to the lender.
Leaders Are Not Naive
Lenders will usually require a broker’s price opinion; known as a BPO or apprisal, before agreeing to a short-sale price. If a lender believes they short-sale price is too low, they may decide to start or continue with foreclosure over a short-sale, the lender may also hold out for a higher price or just refuse to approve the short-sale offer altogether.
Many Homes Sell “As-Is”
Since most short-sale sellers have little or no cash, it is common for the seller to refuse to pay for any repair or work discovered during the buyer’s or the bank inspection of the property. The seller may be behind on utility payments causing the water or power to be unavailable for purposes of inspecting the property. And the buyer’s lender may not approve the sale without all utilities being on during the appraisal or lender’s inspection.
Length of Time to Close
Lenders are overwhelmed. Depending on a particular lender’s backlog, it could take anywhere from weeks to months to get a response to the buyer’s offer. If multiple lenders or liens are involved, the process gets longer and more difficult as every lien holders must agree to the short-sale.
Loss of Control
Because the sale cannot close without lender approval, the lender(s) essentially control the timing of closing thereby making it difficult for the buyer’s to plan a move or lock interest rates in. The lender may sell the mortgage to another lender in the middle of short-sale negotiations, requiring the entire process to start over from the beginning. In addition, market conditions may change while the buyer waits. In some cases, I’ve seen the condition of the house deteriorate horribly while waiting for the approval.
Lenders Can Change Conditions
Lenders often reserve the right to renegotiate the terms of the short-sale at the last-minute which can cause the buyer’s purchase to fail.
Little Seller Motivation
Most short-sale sellers will receive little or no money at closing. The situation that is causing the financial difficulties could also be having a huge emotional toll on the sellers causing them to withdraw from communication with the appropriate parties and can affect their motivation to cooperate and even close the sale.
With all the above being said, there are times when a short-sale makes a lot of sense for a home buyer. If you believe you are the right buyer for a short-sale in the greater Seattle area, click on the below map and choose your region to search.