Are You a Buyer Looking to Purchase a Short Sale?

It seems that there is a significant amount of confusion when it comes to purchasing a short sale. There are many misconceptions when it comes to this type of transaction, so below I have provided some information to potential buyers of short sales. If you are looking to purchase a short sale, understand that it is not the same as a normal sale and the approach is very different.  There could be several parties involved and issues that are unknown to the buyer and buyer’s agent that can affect the transaction. If you are looking to purchase a short sale here is some helpful information.

1. On average, to get a short sale approval, it can take 60-90 days.

There could be mortgage insurance and an end investor on the loan as well as the servicer, which means it has to go through three different processes. Bank of America could be the servicer on the loan but they do not actually own the loan, so, the short sale has to pass their guidelines, then go to the mortgage insurer if there is one, then to the end investor like Fannie Mae and Freddie Mac. If you are a buyer and can’t wait at least 60-90 days for an approval and then another 30 days to go to closing, then you need to look at other houses. The worst thing you can do is tie up a house that is in a short sale with no intention of being patient while waiting for a short sale approval. Approvals can come sooner than 60 days, but industry standard is at least 60 days to get an approval or denial.

2. There is a general assumption that you can purchase a short sale for 40-50% under its listed price.  In a short sale the bank comes out and does a valuation of the property and will expect a slight discount, but will not accept a huge amount under the market value.

Hopefully, if the agent who is handling the sale is experienced, they will have already gotten an approved list price from the bank by the time you are interested in making an offer. The bank will usually be willing to negotiate on that price, but will not, in almost every case, take 40-50% off of that price. To that point, you may be able to get a reasonable deal on a short sale, though it will not be, in most cases, as much of a deal as you may be able to get on an REO (foreclosed property). Also to that point, most short sales will be in better condition than an REO. When you look at the potential repairs a comparable REO needs and the time and expense it can take to do those improvements vs. a short sale being sold at a slight market discount with improvements already made, the investment could even out. There are REO properties that can be picked up for a huge discount, but require massive repairs that a comparable short sale may not require.

3. Short sales are a very difficult process and it takes a qualified person to handle this type of transaction.

With this type of transaction it takes a very experienced agent on the listing side as well as the buying side. Make sure before you move forward on the transaction that the listing agent has ample experience dealing with these types of transactions, or you could be tied up in a contract for months that never goes to settlement. There are several different types of short sale processes and each bank’s process is somewhat different; it takes a professional who has had experience with all of these different types of short sales to help facilitate a successful transaction.

4. In most short sale transactions the properties are sold “as-is” and no repairs will be made.

Although there are some exceptions to this rule, speaking in general, short sales are sold “as-is” and no repairs will be made even if they are found during a home inspection. In most short sale transactions the bank will require both the buyer and the seller to sign an addendum that states the property is being sold “As-is” and no repairs will be made.

These are just a few short pointers for buyers who are looking to purchase a short sale as they are a reality in every market, and if you have the patience you may be able to get the home you are looking for at a discount!

Brandon Brittingham

About Brandon Brittingham

Brandon Brittingham is considered a leading national resource on foreclosure prevention and short sales. Brandon has been involved in over 400 short sales, and is the co-author of the SSC (Short Sale Certified) designation. Brandon has trained over 2000 real estate agents nationwide on short sales and how to help homeowners prevent foreclosure. He has worked with several major lenders to help them develop processes to streamline their short sale and loan modification processes, and has been a Regional Top producer in his area for the last three years and was recently acknowledged by Realty Alliance for being in the top 5% of realtors in North America.

7 Responses to “Are You a Buyer Looking to Purchase a Short Sale?”

  1. TR May 8, 2012 at 10:11 am # Reply

    The biggest concern for buyers and their agents when approaching a short sale IS

    Making sure the seller, their broker and or the seller's negotiator KNOW what they are trying to do and the property actually has a chance of going SHORT !  So much time wasted due to property not being set up right in the first place.   We try hard to qualify the listing from the buyer side prior to really even considering it.  Most short offerings still today in our market are just "blind auctions" or "price drop trolling", BE CAREFUL.  Short sales are challenging, more are coming - so do not always believe what the listing says.  Ask the listing agent questions

    What kind of short  ?
    how has the seller qualified ?
    Do they have a listing package to the bank ?
    Do they know who is on title and mortgage ?

    If they cant or will not answer these basic questions, take your buyer and run - otherwise buy a large bottle of aspirin and hold on for the Sideways !

    Try to get 3rd party authorized from the seller on the BUYER side.  


  2. Rogervining May 8, 2012 at 10:14 am # Reply

    Timely subject.   many listing agents of short sales usually list at a lo ball price just to get a bid to submit to the bank so it is better to see one thats been on the market a while or call every listing agent of a short sale to see if bank has agreed to a listing price BEFORE wasting buyers and Realtors time.

  3. TLC May 8, 2012 at 11:19 am # Reply

    I have found that depending on the type of loan and who the lender is the BPO/Appraisal will not be ordered until you have a sales contract.  You should be listing short sales just under market value and then adjusted for any repairs that must be done.  If you're not getting much traffic on line and off then drop the list price monthly just make sure you send the lender the traffic history once a contract is received along with the list of repairs if any with price quotes.  As long as you can justify the sales price you have a good chance of an approval or a counter price that is reasonable. 

  4. Brandon Brittingham
    Brandon Brittingham May 9, 2012 at 5:50 pm # Reply

    Good comments guys-With the short sale market changing it is always my suggestion to start the process prior to having an offer. Most of you banks now will do this and are moving towards more of a "co-op" approach where they will actually supply a listing price range to the listing agent prior to an offer. All FHA backed short sales will provide an ATP(Approval to particpate) which will actually outline the appraised value and what HUD's net needs to be. This process is so much easier so various major lenders have started to follow suit with similar type of processes-as you all three have said the listing agent has to know how to handle this type of sale to come to a succesful conclusion!

  5. MyPadAZ May 10, 2012 at 1:47 am # Reply

    They said could t8k 20 days or < from 45 days.vbut its more like 125 days now, so will this will get t down to 60 days?

  6. Shanna May 16, 2012 at 1:21 pm # Reply

    Do you happen to have any statistics about the % of short sales going through that are in contract, on average?  Great post Brandon!

    • Brandon Brittingham
      Brandon Brittingham May 16, 2012 at 3:34 pm # Reply

      The last NAR statistic I saw said 43% of SS under contract do not close-my personal experience has been much higher. I try to get the buyer locked in for 90 days-research the property upfront so there hopefully is no suprises and make sure everyone involved has realistic expectations. I would say about 75% of mine close on the first try

Leave a Reply