At the height of the recession, home-buyers snatched up short sales, properties that sell for less than the previous owner owes the bank. Although the housing market is recovering in many parts of the country and inventory is getting tighter, some short sales are still available. In fact, short sales accounted for an estimated 22 percent of all residential sales in 2012, according to data from RealtyTrac.com.
However, while VA and traditional loans can be used to purchase a short sale, the short sale process is more complicated than a typical closing. Here’s what you need to know before placing an offer on a short sale.
- Work with an agent who’s closed other short sales. Not all agents know how to handle short sales, so Jon Sterling, a senior sales associate with Climb Real Estate Group in San Francisco and author of Mangled Mortgage – Everything You Need to Know About Foreclosures, Short Sales, and Loan Modifications, suggests finding one who does. “A lot of people say they’re short sale experts,” he says. “Do some research and find someone who can give you specific examples of short sales they’ve closed recently.” There are professional designations such as Certified Distressed Property Expert (CDPE) that indicate knowledge in this area.
- Get preapproved. Mortgage preapproval is a smart move for most home-buyers but it’s especially important for those looking at short sales. “When the buyer presents the offer, they need to have a preapproval from a bank or financial institution showing that they have enough cash for the house or that they’re preapproved for the bank for the amount of money that they’re making,” says Ron Savarese, a realtor and Certified Military Housing Specialist with Davidson Realty, Inc. in St. Augustine, Fla. Prequalification isn’t as rigorous, so preapproval carries more weight.
- Plan on waiting. Banks aren’t as motivated as the mortgage-holder to close a deal, so short sales can drag on for months. Typical residential sales might close in 30 day but short sales generally take 90 days or longer. Freddie Mac rolled out a program last fall to speed up the short sale process to 60 days or less, but it’s not available in all areas. Home-buyers who are planning a relocation well ahead of time may be able to wait out a short but those that need to move quickly or want somewhere to live after returning from a deployment may not want a short sale. “They can be frustrating and most people that go through the process of a short sale are surprised at how long it takes and how frustrating it can be,” Savarese says. The only way to speed up a short sale is to pay with cash.
- Keep your paperwork organized. To avoid unnecessary delays, get all the signatures and paperwork you need before making an offer. Working with an agent who’s well-versed with short sales (see #1) can help with this. “If you have to go get signatures, you lose a couple of days,” Sterling says. “Be very organized and complete with the short sale package that you present. They probably will ask for more stuff along the way.”
- Understand that it’s like sold as is. Short sale buyers have a right to a home inspection before closing (and it’s a smart idea, as distressed owners may have neglected key maintenance issues). But if the inspection uncovers issues, the bank may not want to address them. “In most cases, sell as is means that it’s not going to be repaired,” Savarese says. “The buyer has the option to get out of the contract if it’s something that they’re afraid of.”
Photo courtesy akeg