Keller Williams Realty



PURCHASING A SHORT SALE PROPERTY (FAQ’S)

Over the years, many of my clients have asked me to find them a short sale, thinking that they will get a great bargain, because it is a short sale. Unfortunately, this is not always the case.

So What is a Short Sale? :

When a seller with a mortgage is interested in selling their property for an amount less than what they paid for it, it is considered a short sale.

Why do sellers, sell short?:

• Some sellers can no longer afford to pay their mortgage

• Some sellers have outgrown their space or can no longer take care of their property

• Some sellers need to relocate out of state and must sell their home

• A seller may die, and leave their estate to settle the sale for less than is owed to the bank

How much work do short sale properties need? :

Most short sales are sold in as-is condition, meaning that the seller will not do any repairs as a condition of the sale. You can have a home inspection done on a short sale, but regardless of the outcome, the seller will usually not pay for any repairs. You can cancel a sales contract, if you find that there are too many items needing repair. You should speak with an attorney regarding your rights, when purchasing a short sale.

Depending on the reason for the short sale,

• Properties can be found in move-in condition where a minimal amount of work is needed

• Over-improved condition-where a seller has taken a second mortgage out to finance improvements (the second mortgage can be the reason the seller is selling short)

• Average condition-where the seller has tried to maintain the property and some items may need to be fixed or replaced

• Poor condition-where the property may be abandoned,appliances have been ripped out, landscaping may be overgrown, there may be water damage as a result of pipes freezing, etc.

What is a foreclosure, how is a foreclosure different than a short sale?Can a short sale become a foreclosure?:

• A homeowner that is behind in their payments or has stopped making payments on their home, may try to sell their home. If the homeowner continues to not make payments and the house does not get sold, within a certain amount of time, the bank will take legal steps to foreclose on the property and assume ownership.

• A foreclosure is a bank owned property. The bank usually does not know the history of the house, or the extent of the repairs that may be needed. Foreclosures are also sold as-is, where the bank is usually not willing to make repairs. You can have a home inspection done on a property in foreclosure. If a septic system fails or there is a below ground oil tank, the bank will sometimes step in, to help a prospective owner with these issues, knowing that the house may not saleable if these items are not addressed.

• The price of a foreclosure is pre-set prior to the bank listing the property with an agent—the price on the listing is a pre-approved price, with a small amount of room for negotiation.

• With a short sale, if a costly repair is found on home inspection, it is more than likely that a distressed homeowner will not be able to help with these repairs. These homes are often forced into foreclosure, when buyers are not able to take on these repairs in order to get their home sold. Some times the bank will step in with a property in disrepair and paint and carpet, before placing a vacated home on the market.

• A bank can be taking steps to foreclose on a property, while a homeowner is working on selling their house short. Occasionally a bank may take possession of a property while there is an offer on a house. A bank can have a short sale department working with the homeowner on getting their home sold and a foreclosure department working on assuming possession of the property. These 2 departments are not necessarily talking to each other and this can create stress and confusion for a homeowner that has stopped making payments on their home. As your agent, I can try to ascertain where the seller is in the short sale/foreclosure process.

Is there an advantage to buying a short sale, as opposed to a foreclosure?:

A homeowner “selling short,” may complete a “Seller’s Disclosure,” documenting the condition of the house, any repairs made, as well as known repairs needed. This document can assist you in deciding if you are interested in making an offer, how much you can afford to offer, as well as how much you may need to budget for repairs. If the seller’s have not completed a seller’s disclosure, I can speak to the seller’s agent to find out any questions and concerns you may have about the condition of a property, before you make an offer. With a house in foreclosure, most often there will not be any information given on the history of the house, etc. I may be able to research the history of the house by looking at information on past listings, which may or may not be accurate

Are short sales always priced lower than other homes on the market?:

• Sometimes agents will price a short sale under the market to generate interest in the home. If a home is priced too low, there will usually be multiple offers and the price will be determined by the owner and then the bank and who is willing to offer the most for the home. Some banks will only look at one offer at a time. Other banks will accept multiple offers, and sometimes back up offers.

• Sometimes an agent will price the house high and then keep dropping the price of the home, to demonstrate to the bank that there were no offers at the higher price points and that the offers submitted are valid.

• Short sales on average are sold for approximately 10%-15% less than homes that are not short sales. Short sale pricing can be very neighborhood dependent. After determining the extent of the work needed, these homes may be a great buy or in retrospect, it may be better to buy a home that is just priced well, that is not a short sale.

I found a short sale that I would like to make an offer on. What happens next?

I will work with you to write up an offer to be presented to the homeowner.

1. After the homeowner signs off on the offer, the offer will be submitted to the bank.

2. The bank may, after some time has passed:

• Sign off on your offer for the price you submitted or

• Make a counter offer to the price you submitted or

• Reject your offer entirely or

• Ask the seller’s agent to solicit additional offers

3. You may have a home inspection before the bank accepts your offer, or you may wait until after the bank accepts your offer. You should speak with your attorney concerning what would be best for you.

4. Until the bank signs off, your offer is not legally binding. You can make offers on other homes, although this is not something I would advise.

5. After the bank accepts your offer, you will be “under contract,” and the bank will give you a date that you MUST close by. If you do not close on the bank agreed upon date, there are some banks that will charge a daily fee for each day that you are late. This is true with a foreclosure as well.

I have a house to sell. Will the bank accept my offer on a short sale?:

If your house is Under Contract and has a set date to close, the bank may consider your offer.

The bank will probably not consider your offer if your house is on the market and is not Under

Contract, unless your offer is for cash.

What is a “bank approved” short sale /”bank approved price”?

Upon being notified that a homeowner would like to “Sell Short,” the bank may send out an independent real estate agent, to help them determine the value of the property. The bank may then decide, to accept/reject all known offers that have been submitted previously and tell the seller’s agent or attorney,what the acceptable purchase price is. This is the “bank approved price.” Once the bank has given out this price, this property is also known as a “bank approved short sale.”

While watching the real estate market, you may see a house that has been on the market for a while and then suddenly the price increases, without any change in the listing or property. With short sales, this may be as a result of the bank dictating the “approved” price.

We can submit an offer to the homeowner/bank for less than the bank approved price, but you should not be surprised if the homeowner/bank rejects your offer!

Buying a short sale or a foreclosure can be a complicated process!

How long does it take to purchase a short sale ?

There is no fixed amount of time set for how long it will take the bank to sign off on your contract to purchase a short sale. There are many times where it can take 6 months or more to close on a short sale. I have been involved in “bank approved” short sales that have taken 4 months to close. Regular sales normally take six weeks to three months to close.You will most likely need to exercise a lot of patience with a short sale transaction.

What if interest rates rise while you are waiting for a response from the bank on your offer?

• For a mortgage of 350K, your payment would increase $105 a month, for the life of your loan, if interest rates rise from 4.5 to 5%.

• For the same monthly payment, you could have made an offer and closed earlier, on a home with a mortgage of 370K, that was NOT a short sale.

As you can see, buying a short sale is not easy and is not always a bargain. Each situation and property is unique. Please do not hesitate to reach out to me with any additional questions you may have regarding the purchase of a short sale or foreclosure. Together we can make the purchase of your WOW house a reality.

J. Lynn Seiler

RE/MAX House Values 4

Hackettstown, NJ

908-852-1333 (Office)

908-294-0022 (Cell)

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