Kimber Realtor Huntington Beach Orange County

2012: TIPS ON BUYING A SHORT SALE; BE PREPARED TO WAIT

    Most would agree that now is the best time in decades to buy a home. Everyone wants a great deal and the lowest interest rates available. While there are many success stories of homebuyers securing properties for 30% - 50% below market, there are also several misconceptions. The majority of those stories come from other States where the unemployment and economy is much worse than in the Beach Cities in California.

     Many in the market to buy a home want a short sale or foreclosure. But most do not understand the challenges faced when making that decision. One thing that’s clear in this unique market…rules seems to change daily so potential short sale buyers, need to be flexible. The process usually takes several months to get full approval – depending on; how many liens are held on the property not limited to but including 2nd & 3rd mortgages, Delinquent Taxes and Delinquent HOA dues.

    If you are interested in securing a short sale property, this just may save you a lot of time. While assisting many buyers with their short sales purchase, these have been the most common things to note.

1. Definition: A short sale is a sale of real estate in which the proceeds fall short of the balance owed on the property’s loan. In simple terms, your home value is no longer above what you paid for it, so banks may allow you to sell it for the current market value. Sellers are first encouraged to try for a loan modification, but if that fails, a short sale is definitely a better option than a foreclosure.
2. Importance of a Pre-Approval Letter: Get your pre-approval letter from an approved lender – PRIOR to submitting an offer. You will also need proof of the deposit & down payment via current bank statement.
3. Price is usually set by the agent & seller, not bank: The agent and seller often create a very low asking price in order to attract buyers. The bank is normally unaware of the asking price; however, the bank has the final say in what an acceptable offer will be. Since the bank has the power to ultimately accept or deny offers, their lack of price awareness often leads to the process taking longer than anticipated. The bottom line is that the buyer needs to remain positive and patient throughout the entire process, sometimes even for months. PATIENCE IS KEY!
4. Loans owned by 1 bank usually better than 2: If the seller has loans owned by two different banks it is a lot more difficult to approve the short sale. This is something the agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved. While the reasons are beyond the scope of this guide, buyers should know that when the seller only has loan(s) with one bank the short sale often becomes more buyer-friendly.
5. Lowball offers get slow or no response: Remember that the bank is typically unaware of the pricing during a short sale. When lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback. Surprisingly, it may also take painstakingly long to hear back even on good offers due to the high volume of transactions lenders are inundated with these days. Multiple offers are common with short sale homes priced well, so be prepared and present your best offer if you are really interested, or you may lose out.
6. Security Deposit: Sellers typically require an earnest money deposit in the amount of $3,000 to $5,000 (but this varies). Escrow will deposit check and hold the money in your escrow account. Your deposit is secure and supports your commitment to the short sale process. If written in the contract, you are still allowed your 17 day contingency period to cancel escrow for any reason without risk of losing any or all of your deposit.
7. The short sale list price does not mean the bank will approve it: So be prepared for a counter offer. If counter offer is re-submitted to bank, expect to wait at least another 30-days for a response (in most cases). To save time (if this amount is within market price) consider accepting it quickly.
8. Don’t hang your hat on the property: Short sales aren’t necessarily "short." It can sometimes be a very long process. Don’t get your hopes up for just one property, keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic, the right property will come along. In most areas it is completely legal and risk-free to have multiple offers out at any given time with the proper contingencies.
9. "Approved" prices are quickest: It is important to remember that short sales are not always timely; however, making an offer on an "approved short sale" can be a quicker process. An "approved short sale" has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up buying the property. These types of short sales are some of the most highly desirable.
10. Some banks want strongest buyers, some want strongest offers: The bank has all the power in approving short sales. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer the buyers with large down payments while others just want the highest price regardless of down payment. Many buyers want to know if they will get a deeper discount for an all cash offer. This is very hard to predict and one will never really know until they make an offer
11. Repairs are seldom done, credit is more frequent: Most short sales are sold “AS IS” so it is important to get your own home inspection. If there are issues that need to be made on a home, even if they are necessary to get a loan, it is often unlikely that they will be done. Sometimes a credit is issued and the buyer must take the responsibility of fixing anything that is broken.
12. BUYER or SELLER may be asked to contribute toward some of the shortfall: Be prepared to have additional funds available to close the deal, because typically the seller is not in the position to pay. These amounts vary, but typically are $2000 – $10,000.
13. When you get approval, must close on time: During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. Because of this, it is important to take care of all loan paperwork immediately after opening escrow. We’d advise buyers to be extra prepared and try to have the loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension will need to be made immediately. If the request is made early enough, many banks will grant an extension but don’t just assume it will happen.