Many buyers want to look at foreclosures and short sales as they have read or heard that they may be able to get a good deal. While in some cases, that may be true, buyers need to know what they are getting into. Here are some Q & A’s that may be enlightening.
1) WHAT IS A SHORT SALE?A home that is listed as a short sale is when the seller owes more than what the home is worth. Sellers are often referred to as being “under water.”
2) I HAVE TO BE MOVED BY A CERTAIN DATE, SHOULD I CONSIDER LOOKING AT HOMES THAT ARE LISTED AS A SHORT SALE?NO! Getting short sale approval by the seller’s lender can take a minimum of 60 to 90 days. However, there is no way of knowing how long the process will take. If you want to consider a short sale you need to be very flexible in being able to complete settlement. You need to be prepared to extend the settlement a month or two or more.
3) IS MY OFFER MADE TO THE SELLER OR THE BANK?Both actually; the Agreement of Sale (AOS) is between you and the seller. The seller must accept your offer and sign the AOS. The lender must approve the sale price as they are not getting all they are owed.
4) SO IF THE SELLER IS NOT GETTING ANY MONEY FROM THE SALE ANYWAY, I MIGHT AS WELL PUT IN A LOWER OFFER, RIGHT?Not really; the listing agent should have done a market analysis to establish a price in today’s market. The lender has had at least one appraisal done so they know what the value should be. It is highly unlikely that the lender will approve a sale price of much less.
5) CAN I GET INSPECTIONS DONE PRIOR TO SETTLEMENT?YES, however, you are buying the home in “as is” condition. The sellers typically do not have any money to make repairs. The AOS is contingent upon the inspections so if there are problems, you can void the AOS and get your deposit monies returned.
6) I KNOW A LOT OF FORECLOSURES NEED A LOT OF WORK AND REPAIRS; IS THIS TRUE OF SHORT SALE LISTINGS ALSO?Many short sale listings are in relatively decent condition and some are in move-in condition. However, some have a degree of deferred maintenance since the seller does not have the funds to keep up the home. This must be taken into consideration when inspections are done.
7) WHAT IF THERE ARE BACK REAL ESTATE TAXES OWED, DO I HAVE TO PAY THEM?No. Any outstanding taxes will be paid by the seller’s lender.
8) WHAT ABOUT HOME OWNERS ASSOCIATION (HOA) FEES THAT ARE OWED?This is a more difficult one. The seller’s lender generally will not pay any HOA fees. So that could mean that the buyer may have to pay if the seller cannot or if the HOA is not willing to waive the fees.
9) WHAT HAPPENS IF THE LENDER DOES NOT APPROVE THE PRICE THAT I OFFERED?The lender will typically come back with a counter offer. At that point you can agree and move forward with settlement or decline the counter offer and have your deposit monies returned.
10) WHEN SHOULD I GET THE INSPECTION DONE; BEFORE OR AFTER LENDER APPROVAL?There are two different views on this. One is to get them done right away so if there are issues, you are not waiting two or three months to find out. You can move on to another home. The other is to wait; why spend the money on inspections if the short sale isn’t approved.
11) ONCE THE LENDER APPROVES THE SHORT SALE, HOW LONG DO I HAVE TO SETTLE?Typically 30 days or less, this can mean scrambling to get things done in time.
12) WHAT ABOUT MY MORTGAGE, WHEN DO I START THAT PROCESS?You will need to get a pre-approved as you would with any offer. Seller’s lenders will want a copy of that as well. You need a good mortgage lender on your side. You will need to complete application and get all the needed documents together so you will have commitment soon after short sale approval.
13) ARE THERE ANY ADDITIONAL SETTLEMENT COSTS FOR THE BUYER?There could be. Some listing agents work with a third party vendor to process and negotiate the short sale with the seller’s lender. They could have a fee to the buyer which can be as high as $3,000 to $4,000. This should be disclosed to you upon making an offer.
Short sales, like foreclosures, are not for the faint of heart. If you find that perfect home and it is a short sale, you need to be flexible, have plenty of patience and understanding.