Did you see the movie The Tree of Life or Inception—a surreal movie where you walk out of it thinking, “What in the hell was that all about?!?!” That, my friends, is what buying a house on short sale is like. You’ll endure this long confusing, confounding, upsetting period of time, and then it is over. You know something good may have happened, but you’re not sure what. Only this time, you get a set of house keys handed to you.
If you are buying a short sale, don’t believe a thing until you get those keys in your hand. In the meantime, just breathe deep and repeat your own personal, private mantra. And, of course, do what I tell you to do.
Short sales continue to take up a substantial portion of the real estate inventory, and continue to be the most confusing and misunderstood of real estate transactions, despite their prevalence. A short sale occurs when a homeowner must sell their house, and the market dictates that it can only sell for less than what they owe on it. Period. It doesn’t necessarily mean the sellers are in the process of foreclosure or anything else. Don’t assume.
From a buyer’s point of view, short sales can be especially stressful and tedious, but you can often get a great deal on a house. I have often had buyers receive appraisals anywhere from $15,000-$30,000 over the purchase price. I call that “patience equity.”
Of course, short sales are anything but short. The reason they take so long is because the seller must negotiate the short sale with their lender, usually with the assistance of their real estate agent and sometimes a short sale negotiation specialist. Once an offer is accepted, the seller’s paperwork gets in line with the other short sales on the desk of a bureaucrat at the lender’s short sale center. it can be months before you see close of escrow.
As a short sale buyer, your agreement and contract is with the seller, not their lender. However, the lender will dictate every movement in the transaction so that it fits into their bureaucratic system. And, every bank is different. And, every bureaucrat within the bank’s system is different. And, every property and loan is different. So, it is impossible to ever say with confidence, “This is what to expect when buying a short sale.”
But, I’m going to say it anyway. These are my opinions based on working with buyers on many short sales since the beginning of the housing crash up until this very minute. It may not be what you expect me to say, but this is what to expect when buying a short sale:
- Don’t believe a word from the seller, the listing agent, the short sale negotiator or the seller’s lender. I’m not saying they are lying, but they are at the mercy of a bureaucracy they have no control over. If what they say or promise comes true or works out—wonderful! But, don’t put a lot of energy into expecting their statements to actually happen.
- If you are in a hurry, don’t buy a short sale. Back to the “every transaction is different” stuff and the “don’t believe them” stuff up above. Timelines cannot be counted on or really even enforced. Just because a date is in writing, it is pretty much meaningless. Work closely with your agent (me, I hope) to always know what your options are, even if it means walking away from the deal. I once had a buyer walk after waiting for almost a year (that was early in the crisis…things have gotten a wee bit better since them). And, remember—breathe and be patient. Most short sales take at least 3-4 months.
- If you are looking for a deal, definitely consider a short sale. If you can abide by rules 1 and 2, then you might get a really good deal on a house. Is it worth the stress of waiting and jumping through seemingly ridiculous bureaucratic hoops? You tell me. Bear in mind, however, that you are buying what is considered a “distressed property,” so it may need some work after you close escrow. Don’t count on the seller (or their lender) to provide concessions on price or do repairs. You’re getting the house for a discount, so stop complaining and get to work turning it into your dream home.
I better wrap this up, and I didn’t even get into technical stuff like: written lender consent, earnest money, inspections, HUD statements, HAFA and so much more. I wanted to give a more impressionistic view of the short sale process. We need more impressionism in real estate, don’t we?
I really could go on and on about the short sale process, but let me know if you have any specific questions or would like more information.