How to Protect a Buyer in a Short Sale Real Estate Contract

Buying a short sale property can be a difficult process as you’re working with a seller who has little control over the transaction and a lender that wants to get the most value out of its loss. Short sales take time, diligence and a savvy negotiator working to protect the buyer by making an attractive offer become a successfully concluded transaction.

Ask the listing agent if other offers are coming in. Offer less than the lender’s approved price if market data leans toward the offering rather than approved price. Consider offering less than the asking price if it doesn’t accurately reflect the market. Don’t get into a bidding war unless the buyer is prepared to pay a higher price.

Speak with the community’s homeowners association to get the status of the owner’s position regarding past due fees. Ask if the HOA intends to foreclose ahead of the short sale, if there are outstanding dues. Get the lender’s position on the outstanding fees and who pays them. Investigate additional liens that may be against the property through a title search. Include this information and the payoff expectations in your offer.

Submit your purchase contract to the seller’s representative and include as few contingencies as possible. Attach the buyer’s preapproval letter and a deposit check, and agree to increase the deposit when the lender approves the transaction. Alert the buyer’s lender that the purchase is a short sale and tell the buyer to get a six-month financing commitment in case the transaction moves slowly. Investigate through the seller’s lender whether foreclosure action is ongoing once you get an executed contract.

Hire a licensed home inspector to go over the property and issue a report on all the systems and appliances. Be sure any additions have a permit on file with the local code agency. Agree to an as-is purchase contract only if the buyer is willing to accept the property in any condition. Inspect for termites and other living organisms, including mold, as the presence of these allow you to withdraw from the contract.

Read with care the lender’s appraiser’s report, as this indicates the current value of the house as determined by an impartial third party. Don’t move forward if the house isn’t valued for the mortgage amount. Supply contradictions in the form of market data, if you refute the findings. Don’t advise the buyer to add more cash to the transaction to make up the difference, unless the buyer is determined to own the property.

Make a list of all items that are included in the sale and be sure they remain in the property. Do a final walk through before closing. Inspect the final Housing and Urban Development closing statement for accuracy. Don’t change the closing date. Don’t come to the closing table with additional funds to cover items that were not agreed to previously. Get written confirmation from the seller’s lender that all foreclosure activity has been terminated.