In the north Seattle area, there are currently 486 active condominium and single family listings (this includes Ballard, Wallingford, Fremont, Phinney, Greenwood, Green Lake, and further north to 145th). Of the 486 listings, 64 of them – 13% – are short sales. I get a lot of questions on how a short sale works, and it doesn’t surprise me that although they’ve been a common occurence since the recession hit, many people still don’t know what one is or how to go about purchasing one. This is my highly condensed version of How to Buy a Short Sale.
So you want to buy a short sale:
You’ve found the perfect home for you. It’s everything you ever dreamed of, and you’re ready to make an offer. There’s just one problem – it’s a short sale. So what does this mean exactly? It means that the homeowner owes more money on their mortgage than their home is now worth. Generally the owner is experiencing some kind of financial hardship, so they’ve had to stop making their mortgage payments. To sell their home as a short sale, they have to show the bank that they owe the payments too that they can no longer afford to stay in the home and would like to sell it. The bank then reviews their case, and if they agree, the house can go on the market at a reasonable market price. Often, the bank will “forgive” the debt owed (the difference between the sale price and the amount owing) – but seller beware, some banks don’t do this, and there could be hidden taxes and fees involved.
Ok, I get it, now how do I buy one?
With a lot of patience. The seller puts the home on the market at a certain price. That is NOT necessarily the price that the bank is willing to sell it for (sometimes it’s high, sometimes its low). So first, you make your offer. Then you wait. And wait some more.
The seller will review your offer first and either accept or reject it. Most sellers will accept your offer. However, this does not mean you now have a contract on the house. Because after the seller accepts the offer, it then goes to the bank. The bank review time could be anywhere from a couple of weeks to several months, depending on how busy they are. So after submitting your offer, you could be waiting 30, 60, or 90 days to hear if the bank will accept it.
The good news is that if the bank DOES accept your offer, the rest of the deal moves forward just like in any other transaction. Once the bank accepts the offer, it could only be a matter of weeks before you’re moving in.
The one other exception to a regular deal at this point is that the bank generally won’t agree to any repair work that might be needed. You can still perform an inspection, but the home is usually sold “as is.”
That doesn’t sound so scary.
It’s really not. It takes patience and can be frustrating, but if you have the time to wait you could end up with a really good deal. Of course, this was Short Sales 101 – there’s more details to go into when you get a little more serious. Here are a few questions you should know about the short sale home/owner that you’re going to be buying from:
1. How many mortgages are owed on the house? Generally, if a home has more than 2 mortgages (such as a first mortgage, second mortgage, and HELOC), the short sale can get messier because there are more people to pay off.
2. Has the home received an offer before? If it has, that could be good news. Often, a short sale listing will have already gone through the offer process with another buyer, who just got sick of waiting and walked away. If it has, that can usually cut your wait time in half to get a response from the bank.
3. Is there a professional short sale negotiator involved? Some real estate brokers are experienced in short sales by now, and handle the bank negotiations themselves. Others, however, hire a short sale negotiator to do it. If that’s the case, there may be an extra charge involved for you where they’re asking to split the cost of the negotiator. You’ll want to find that out right away, as the cost can easily climb over $1000.
Side note: Short sales are completely different from bank-owned properties. For some reason, people mix these up a lot. A bank-owned sale is just that – bank owned. The homeowner is already out of the picture, the bank has repossessed the home, and it’s more like buying a house in a regular transaction (bank owned homes will also be sold as-is).