Short Sale Real Estate
I’m sure you’ve heard the term in today’s real estate market. A Short Sale is when a home owner negotiates with their lender(s) to sell their home for an amount that is less than what they owe on it. Short. The number of short sale homes have decreased throughout this year, a good sign for the economy. But there are still short sales coming on the market, about 10% of the inventory in Frederick County.
There are several issues that buyer’s need to understand about short sales that will help them navigate this specific part of the real estate market. With patience and the right expectations, buying a short sale can be a great benefit
About Short Sales
1. Short Sales take more time.
After a home receives a ratified contract, the short sale requires a “Third Party Approval”. In this case the third party is the lender, or lenders that hold the mortgage. The bank(s) or investors who have loaned the money for the home must give their approval to the contracted price and conditions. This is what makes the process take so much longer than a standard home sale. If there is more than one lender, the process can be longer.
The lender(s) will assign a negotiator for the home sale. The negotiator will investigate the transaction, order an appraisal or BPO to determine the market value, and make a recommendation to the lender.
2. How long does the typical short sale take?
In 2007 short sales began to hit the market in numbers, as the first wave of home owners found themselves unable to pay their adjusting mortgages. Banks were overwhelmed and understaffed and there were no unified systems for handling the cumbersome process and the massive amount of paperwork. In Maryland only 1 in 31 short sales actually made it to a closed sale during 2007.
Since then, the process has gotten much more streamlined as banks have built short sale departments and trained employees. The government has stepped in with legislation and incentives to help banks move along in the process. The Banks have been motivated when they realized that the loss on a home that is sold in a short sale is much less than the loss they incur due to foreclosure. Today, 90% of homes that are marketed as short sales make it to settlement.
It usually takes an extra 60 to 90 days to negotiate a short sale. Some have been sooner, some later, it really depends on the particular bank involved. Some banks are notorious for being difficult, some are organized and more friendly and cooperative. Some banks are more interested in protecting their investors, some are more interested in getting the home sold.
3. Even if I have the time, should I get involved with a short sale?
That’s a question only you can answer, given the pros and cons.
Pros of a Short Sale:
- You can get a house for about 15% to 20% below market value
- Although not perfect, short sales are usually in better condition than foreclosures, because they aren’t sitting empty. The homeowner usually stays in the home until settlement.
- If your agent and the listing agent are trained and experienced with short sales, they can help set the proper expectations and you shouldn’t find that you’ve wasted time over a home that won’t settle.
Cons of a Short Sale
- If you are not flexible with the time frame, then a short sale might not be the right choice for you. The settlement date cannot be set in stone, so you need to have a 6 to 8 week window.
- When a seller is in a short sale situation, they must have experienced a hardship. In our experience, there is usually no money for upgrades and maintenance. Truthfully, a typical short sale home needs a few minor repairs and upgrades, but is usually not in a state of huge neglect. A buyer ought to plan on doing some minor work.
- The biggest negative about buying a short sale is the unknowns, like not knowing what price and conditions the lender will counter your offer with, or not knowing the exact settlement date until a few weeks before you can settle. Having experienced agents and an experienced Title company can help mitigate against these risks.
Don’t Rule Out A Short Sale
In many real estate markets, short sales are a sizable part of the inventory, so to rule out buying a short sale will very likely limit your choices. In the Frederick Md market the number of distressed sales has decreased.
Chris Highland is a Certified Distressed Property Expert, CDPE, trained and experienced in the process of a short sale. If you are considering a short sale purchase, having a buyers agent who understands the process is a great help. Contact Chris to help you in the process of a purchase.