What is a short sale?
Simply put, a short sale is selling a property for a less than what is owed to the underlying mortgage holder(s). The final sales price is essentially what the buyer is willing to pay for the property with the mortgage company/bank having the final approval of the associated closing costs, commissions, terms and acceptance of a discounted payoff(s). The seller should always consult with an attorney, CPA or tax advisor to determine any legal or tax consequences of a short sale. We have seen the gamut of scenarios from mortgage companies accepting the discounted payoff and releasing all remaining debt to deficiency judgments and negotiating a settlement or new payment plan with the homeowner.
Sellers Why consider a short-sale? A short-sale can limit your future liability due to the fact that you cannot close on a short-sale without each lenders/investors’ approval. Once approved regardless of a 1st, 2nd or 3rd mortgage, you have a meeting of the minds and all parties will sign off to the discounts. Keep in mind a lender might request the borrower participate in the loss. We will do our best to mitigate or negate this from happening.
The pre-short sale process begins at the time of listing the property for sale. An experienced short sale real estate agent will counsel the seller about the entire process and assist the seller in establishing a competitive listing price based on the current market conditions. The primary responsibility of the seller is to request and complete a short sale package from their bank or mortgage company.
Pricing your home for sale – Your home must be priced to sell at market value-it will minimize your downside and not waste your time.
We must consider all variables – Comparable Sales, Pending Sales, Contingent Sales and especially active Listings. The activity on your property will let you know if it is priced right. No or low activity means you must reduce the price immediately.
The short sale process begins in earnest when an offer to purchase is received from a qualified buyer. The actual process from submission to the bank to final approval can take weeks to months. A successful short sale can depend on several factors, among them – • how solid and complete the offer is • the buyers ability to successfully obtain their financing • the bank’s particular process and workload • the seller’s completed and acceptable hardship package showing the bank(s) that there is a true financial hardship • the knowledge and communication skills of the agents • the resulting BPO/Appraisal ordered by the bank • the patience and determination of all parties involved
To ensure as smooth a transaction as possible, buyer’s agents must also be knowledgeable about the entire short sale process and take the necessary time to brief the buyer and set realistic expectations.
As the buyer – some key considerations and questions:
• What is your time frame? Are you prepared to wait for possibly weeks to several months for the transaction to close?
• Are you interest-rate sensitive? If interest rates go up will it negatively impact your ability to get a loan?
• Be prepared for the reality of limited information about the status of the approval and the need for patience if deciding to go the short sale route.
• Be aware of numerous roadblocks along the way to closing. Everything from getting approvals from 2 separate banks to liens and clouds on title to be cleared prior to closing is possible.
• Some listing agents will list the property well below the comps to entice activity and offers. What seems too good to be true to you and your agent is usually proved correct when the bank counters the sales price to actual market conditions. Don’t fall into this trap!
• Strengthen your offer by having a pre-approval (not pre-qual) letter and proof of funds letter from your lender.
• Remember the bank wants the highest net possible after acceptable closing costs. Are there multiple offers on the property? Write your best possible offer first.