⌛Why Short Sales Take Longer to Close than Traditional Real Estate Sales
I’ve been helping people sell their home in a short sale for 11 years. In a short sale, there are many differences from a traditional real estate sale. One of the big differences is the timeline; it takes much longer for a short sale transaction to close than it does for other real estate transactions. If you have not had experience or know someone who has familiarity with a short sale, then you might not know why short sales take longer than traditional real estate sales.
In the short sale, the homeowner is racing the clock, trying not to have the home foreclosed, and at the same time, marketing the home at a price that will prove to the mortgage holder that they aren’t giving the house away. All the while, we are attracting buyers and getting their feedback, trying not to remain on the market so long that the home becomes stigmatized. But the time-line is ever present.
It’s a real dance. But after more than a decade, the dance moves are familiar to me.
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🔎The Lender(s) Must Approve the Short Sale
In a short sale, the seller is negotiating with the lender(s) to sell the home at a price that is many times less than the market value. After a buyer submits a contract and the seller agrees to the terms, we submit the ratified contract to the lender, or sometimes lenders, for their approval of the price and terms. This is called Third Party Approval. This often takes time and negotiation. The time varies depending on the lender, their systems and personnel, the investors, and the case load of the negotiator. The layers involved in the negotiating process is often why short sales take longer than traditional real estate sales.
There are complex parts to the negotiation process in a short sale. Some banks are easier to deal with than others. Sometimes the note is bundled up and sold to another bank before the negotiation is completed…in which case it all has to be submitted anew to the new bank and the new negotiator.
Sometimes the entire file is taken from one negotiator and given to another…in which case it all has to be submitted anew.
Admittedly, these are worse-case scenarios, but they have happened in our experience. While there are uniform steps in the process, every bank is different and every negotiator is different. The one consistency: the reams of paperwork that must be submitted, sometimes repeatedly.
👀A Short Sale Requires Time to Get the Right Buyer
One of the most important challenges with a short sale is in vetting the buyer. Because the contract must have third-party approval, or the lender must approve the offer, it takes more time between the contract ratification and closing. Often, the weeks or months end up being longer than the buyer wants to wait.
One of the things that I have to determine as the listing agent is how motivated the buyer is? Will they wait the extra weeks or months that it takes to get the approval of the lender? I also have to make sure the buyer has the proper expectations.
The reason it’s so important? Because once the home goes under contract, it’s off the market, losing time, but continuing it’s march towards foreclosure. If we waste time with a buyer who quits after waiting longer than they expected for the answer from the bank, then that time is gone. The marketing time is gone, but the march towards foreclosure goes on. These stops and starts are sometimes why short sales take longer than traditional real estate sales.
That’s why it’s very important to get an offer from a buyer who really understands the issues at stake. This means the buyer’s agent should have enough knowledge of the short sale process to help the buyer: first, get proper expectations, and to make sure they have all their paperwork ready to go when the bank(s) involved finish negotiations and accept the offer. They have to really want that home.
⛵Smooth Sailing with A Short Sale
Matt, a retired Navy Commander, found me through an internet search for a short sale specialist. Matt’s home was stunning, lovingly kept and in great condition. Matt was retired and his wife had been downsized, so they were struggling to meet the mortgage. They were not yet in arrears, but it was inevitable.
They contacted their lender and discussed their options. They decided the short sale option was best for them, and the lender directed them to go find a real estate agent trained and experienced in short sales.
What many people don’t realize is that most banks don’t really want to foreclose on a house. They’re not in the real estate business, they’re in the lending business. Many people in a distressed mortgage situation find the stress very difficult and sometimes they put things off. Matt and Nancy were proactive. They faced the difficulties head on and it worked out fairly well for them, compared to some short sales we’ve been part of.
Matt and his wife followed every bit of advice we gave about getting their home ready for the market. They followed our advice about pricing their home correctly for the market, and for a short sale. They were quick to submit paperwork…multiple times! There were several offers within a short time on the market. Several had a home to sell, and it’s not possible to take an offer on a short sale with a house-to-sell contingency. The bank will not accept it.
🙋♂️Getting the Perfect Buyer for A Short Sale
So we kept those buyers in the loop as possible back-up offers, and waited until we got the right offer. It took 39 days to get our perfect buyer. The buyer’s agent was well versed in short sales, which helped tremendously in the process of waiting while our seller negotiated with the bank. We had an experienced title company helping us through the process of negotiations as well. Under current Maryland Law, the negotiation of short sales generally requires licensing under the Maryland Credit Services Businesses Act. Realtors® cannot handle the negotiations.
We had pages of documents to justify the list price, which satisfied the lender. From the date of contract, we settled in six months. The buyers were well aware from the outset that the wait might be long and understood why short sales take longer than traditional real estate sales. Proper expectations are everything!
🚣🏼Rough Waters Ahead!
Did we have surprises along the way? You bet we did! We were moving along with the negotiations when we received notification that we had a new negotiator assigned to our file. That means we had to start all over again!
Several times during the process the bank asked for the same paperwork again. They asked for updated bank and financial statements several times. And as we often see, when they countered, it was on a Friday afternoon and they required a response by 5 P.M. on Monday!
Like many short sales, we had several appraisals throughout the process. Fortunately for Matt and Nancy, the appraiser was local and knew the area. The appraisals were each spot on.
The drama in a short sale can be ridiculous. The stops and starts can be maddening! Sometimes the negotiator can be … less than cordial. Sometimes the appraiser can be from out of town and have no idea as to values. Sometimes the bank can be unreasonable with their counter.
The shortest time-frame we’ve experienced with a short sale was 90 days, albeit 90 days of drama. The longest time-frame was 3 years 2 months from date of listing to closing date. No kidding! This is why expectations are everything, both for the sellers and the buyers.
Even with the special issues which complicate a short sale, we experienced a win-win for all involved. Our sellers got out from under the weight of a mortgage that they could no longer meet because of hardship; the buyers got a great home for roughly 10% to 15% below market. And the lender was able to avoid the costly process of a foreclosure.
👍Real Estate Success Stories: Experience Makes a Difference
After a few conversations with Matt, I’m in awe of his professional experience. To command a ship on the open sea is a huge responsibility in my eyes. To lead a small city full of personnel for months at a time, that takes years of expertise and skill, as well as leadership and knowledge.
It was humbling when he looked at me and said, “Chris, I’m a professional in my field, and I’m confident that you are an expert in yours…just explain it to me, and that’s what we’ll do.” I love it when that happens!
I’m not defending our borders or risking life and limb for my fellow midshipman, so to be clear, I’m not at all comparing myself to Matt. But I appreciated his confidence in me as his guide. Even though short sales can be stressful on all involved, Matt made the process the best it could possibly be. It was an honor helping him.
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Why short sales take longer than traditional real estate sales, by Chris Highland, Broker eXp Realty, in Frederick Maryland. Broker number: 888-860-7369. Chris has more than 25 years of experience in all residential real estate sales, covering Frederick County, Montgomery County, Western Howard and Carroll Counties, and Washington County.
For more information on short sales
Understanding Contingencies in a Real Estate Contract