Archive for the 'Short Sales' Category

2 Aug
Short Sales- The Buyer’s Side
Posted On : 08 2nd, 2009   By : Alice  |  Short Sales

One of the first inevitable questions that come up during an initial meeting with any of my clients is regarding short sales.  I usually receive a myriad of questions, such as:  what is a short sale? Are they listed on the MLS?  I’ve heard that I can purchase a home for a really reduced price if it is a short sale, is this true?

Since it is becoming an extremely popular topic in real estate and also is becoming more and more prevalent amongst homebuyers, I wanted to shed some light on what exactly a short sale is and what it is definitely not.

A short sale is when the currently homeowner owes more on a mortgage(s) than what the current market value of the home is worth.  Typically, the homeowner also needs to sell the property for a specific reason.  Lastly, the homeowner will need to be able to prove financial difficulty and/or hardship.  For example, they have lost their job or been laid off recently, have had expensive medical issues, etc.

When I am representing a seller client in a short sale, the first question I always ask them is if they are in financial hardship.  This enables me to understand their history and the situation that they are in.  Secondly, I immediately prepare a short sale package to present to the bank or bank(s) who holds the current mortgage(s).  Lastly, I will ask the client if they have been served by the bank yet and if a foreclosure has been filed.  This will enable me to figure out how much time the client has before the foreclosure will proceed and the sheriff sale will take place.  To a homebuyer, this is important because you don’t want to make an offer on a property that only has 2 months left prior to the sheriff sale date.

Another fact that many of my buyer clients do not realize it that short sales can take a long time, on average at least 4-6 months from the time an offer is submitted to the time it may be accepted by the bank.  Additionally, when there is more than one bank involved, it can be an even lengthier process.

Additionally, when representing buyers, I always remind them that short sales are almost always in “as-is” condition.  What this mean is that as a buyer, you still have the right to perform a property inspection, but if you find anything wrong with the property, the seller will not repair the items.  In a traditional home purchase, inspection items are usually a part of the negotiation process with the seller.

There are also a few more details regarding short sales that buyers should be aware of.  I have had many short sale transactions where only a 100% tax proration was allowed.  The typical property tax proration in DuPage county is 105%.  As a buyer, what this means is that you will only be credited for 100% of the previous year’s tax bill and that an increase on property taxes will not be accounted for.   Also, if there are any unpaid property taxes or assessments/association dues, either the bank or the buyer will be responsible for them.  I once had a transaction where I was representing the buyer and one week prior to closing, we suddenly discovered that there was over $3,000 in unpaid association dues, and the bank was not going to pay for it.  Moreover, we could not move forward with the closing if the association dues were not paid in full.

Short sale properties are also sometimes vacant.  If the property has already been vacant for some time, it may be an additional risk to take on as a buyer, especially if it has not been winterized.  For example, if a home is vacated for a couple of months prior to a buyer making an offer, then another 3 months while the bank is making a decision, and another 1 month from the time the bank approves the offer to officially close, the house has been vacant for a total of 6 months.  During these 6 months, anything could happen in a property, from a frozen pipe to a toilet/shower pipe leak.  All of these could cause permanent and extensive damage to a vacant property.

Lastly, when the offer has been accepted by the bank, they will usually give the buyer a deadline by which the closing must take place.  This is different from a traditional transaction, where the closing date is negotiated between the buyer and the seller, and there is typically more flexibility.  As a buyer, you must insure that the lender you have selected can guarantee a quick and smooth loan approval process.

Overall, purchasing a short sale can be a very rewarding process and a buyer can obtain a property at a significantly reduced price.  However, buyers also need to be aware of all of the risks that are involved with the short sale process and make sure that they are willing to make the sacrifices necessary to obtain the reduced price.  If not, a traditional transaction may be a better move to go with.