Image by Getty Images via @daylifeWhat is a Short Sale? In a Short Sale transaction, the seller's lender accepts a discounted payoff in order to release an existing mortgage. The home is sold for an amount which is less than the cost of what the owners owe for the loan. The seller needs to be in default (which may be caused by wage reduction, job loss, health crisis, divorce, lack of assets, etc.) before his lender grants him a short sale.
Michael is my Burbank Realtor. I met him three years ago when I was just starting with Real Estate. I thought that buying a short sale was a good idea to start in the industry. I thought that the whole process would be a walk in the park but it turned out that I was wrong. If you are thinking of making an offer on a pre-foreclosure home, I encourage you to think twice because it as not as simple as you believe it would be.
My first attempt at making an offer on a short sale was a huge challenge. Before I share with you some of my learning, let's define a Short Sale.
My Burbank Realtor taught me these short sale lessons that I want to share with everyone.
1. No Standard Operating Procedures for banks. My Burbank Realtor said that one of the downsides of buying a short sale is that it does not have banking standards to follow. Each bank has its own guidelines and it manages short sale transactions differently.
2. The buyer's offer is used to qualify a seller. A seller's hardship application may only be considered by banks if they could submit it along with a short sale offer. This can be a big disadvantage to the buyer. Since the buyer's offer is used to find out if the seller will qualify or not, the buyer waits for a long time – without any guarantees.
3. No Standard Operating Procedures for agents. Every Burbank Realtor has a different way of handling short sale transactions causing confusion to buyers.
4. Unavailable listing. According to my Burbank Realtor, most agents leave listing active even if an offer is pending from the bank. Ideally, once an agent makes an offer with a reliable buyer, the listing should no longer be active and should go to the backup position. Time and effort is wasted when the MLS shows properties that are no longer available. This is a major reason how buyers waste their time. They do not commit to work with a Realtor, and they think they are learning about the market. Unfortunately, the homes that they were investigating on their own were never really for sale.
5. Real Estate agents do not maximize the MLS. Some listings feature a special condition wherein agents are required note down short sales that have existing offers. However, most agents do not use this feature.
6. Long wait. My Burbank Realtor said that one of the disadvantages of buying a short sale is the long waiting process. Even an approved short sale does not mean that the transactions will be done faster. Generally, the fastest span of time a short sale can be transacted is 60 days. The longest waiting time reaches 6 months.
7. The listing price is not the buying price. In most cases, the price listed is not the amount that the bank will take. The listing price is a lower amount aimed to generate more offers. This is another major reason that buyers simply waste their time away. Just looking at the MLS makes you think that the asking prices were sooooo low because they were lies. Working with a Realtor that you can trust will prevent these problems.
8. Frozen asset. In the event that a seller declares bankruptcy while the process is going on, your deposit becomes a frozen asset. What does this mean? This simply means that you will need to wait for a long period of time before you could recover your deposit.
Buying short sale can be risky. You can lose your hard-earned money to nothing if you are not careful enough and if you do not choose the right Burbank Realtor. In my case, I was fortunate enough to find a competent Burbank Realtor who assisted me throughout the entire process and ensured that I make the right decisions all the time.
If you feel that buying a Short Sale can bring you good deals, make it a point to choose a licensed Burbank Realtor who have short sale experience. My Burbank Realtor helped me find a property that was up for short sale. When choosing a property, bear in mind that the longer a house sits on the market, the bigger chance that it will be sold by the seller. It is also more likely that it will sell for more, because many buyers have had the opportunity to bid on the property. Once you find the right property, it's time to make an offer.
This process can be very tricky so you need to be extra careful. When you make an offer, the figure needs to be close to the appraised value. Remember that the owner's lender will still have to decide whether or not your offer will be accepted. In the event that your offer is rejected, you have the choice to make another offer. Do not waste your time making offers worth $1000 each time because this will only waste your time and you can lose the sale. You need to make a fair market offer. If the bank accepts your offer, ensure that you close the deal on the property within 30 days.
I have made offers on short sales and I totally understand the excitement of short sales especially when you are a buyer. Prices can be very enticing. Deals can be very profitable. The entire short sale process can seem like a walk in the park. However, tread carefully. Making decisions out of impulse can have tragic consequences in the end. If you want to lessen the risks, find a competent Burbank Real Estate agent like my Burbank Realtor who will help you along every step of the way.
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