Short Sale Properties


Short sale properties get a lot of interest from potential buyers.  Why wouldn't they?  These homes can be priced at a substantial discount to current market value.  However, with such a reward you should expect there be some risks.   We'll explain short sales and some factors that will help you determine if you are a candidate or not for this type of purchase.  


Definition:  A homeowner is "short" when the owner owes an amount on his property that when combined with all closing costs and fees is higher than current market value.  A "short sale" occurs when a negotiation is entered into with the homeowner's mortgage company or companies (a second mortgage holder) to accept less than the full balance of the loan at closing. 


An ideal buyer candidate for a short sale is one who:


  1. Has cash or is pre-approved for a loan.
  2. Does not have to sell a home to purchase the short sale property.
  3. Is patient and has the time to wait out the months of delay.
  4. Has the money or skills to repair or rehab the property as needed.
  5. Is ready to move on to another home if the short sale is not approved.


It is important as a buyer to determine your patience level.  You must understand that getting a response on a short sale can take anywhere from weeks to months or longer for an approval.  If you are unable to wait, then a short sale may not be in your best interest.  Also, the bank negotiator may not approve the contract with the price and terms submitted.  They may come back with a higher price or change in terms.  The process can get more complex when you add a second mortgage holder.  Remember, you want to own the property with no liens!


The process may get frustrating.  You have a seller who wants to sell.  You have a buyer who wants to buy.  But keep in mind that there is the third party who is being asked to accept less than what was promised to them in their original mortgage.  They must find a hardship in the seller's situation and see value in completing the short sale versus pursuing the foreclosure option.


As in any purchase, earnest money is due according to the terms of the contract.  Many sellers and their attorneys will not work with a buyer who does not submit the earnest money with the contract.  It is deposited when the buyer and seller agree to the contract, not when the lender approves it.


Most often short sales are sold "as-is".   There are usually no warranties or repairs done by the homeowner.  The buyer should complete their home inspection during the time provided in the contract, usually within five business days.   It is done before the lender for the homeowner has approved the short sale.  Even though the home is being sold as-is, it is important to do the inspection so that you can know what repairs you will need to make, or if the inspection reveals too many major defects, you can cancel your contract.


The buyer must make a mortgage application as well.  There is often a quick turnaround between the lender approving the short sale and the lender's required closing date.  The buyer must be ready, willing and able to meet the specified closing date without asking for more time to get their financing in place.  Working with a lender who has experience in short sales is a must.


The homeowner who is doing a short sale needs a listing agent and attorney experienced in short sales who are working on the homeowners' behalf.  There are no set standards or rules to get them done. The buyer should hire a buyer's agent who is experienced and trained in facilitating short sales.  At the Pickard Group, Sue has the Certified Distressed Property Expert Designation and Ron has the Short Sales and Foreclosure Resource Certification.  They have extensive experience in both short sales and bank-owned properties.