When an owner sells a home for less than is owed on his mortgage, it’s termed a short sale. Buying property that’s listed as a short sale is more complex and lengthy than buying property that’s a fair market or foreclosure listing. While the owner lists the property and sets a price, the lender that holds the mortgage must approve not only the sale price, but the strength of the buyer’s offer as well. Submitting a buyer’s package supporting your ability to purchase and backing up the offering price strengthens your chances of success.
Short Sale Specialist
Most states require that a short sale be guided on both the seller’s and buyer’s side by a certified short sale specialist, who is a real estate agent who’s been educated to deal with the paperwork and negotiations involved in a short sale. Speak with real estate brokers whose companies interest you and ask to work with a certified short sale specialist before you begin looking at property.
As you comb specific neighborhoods for a property that suits you, ask your real estate agent to draw up comparables showing what prices homes in short sale positions have sold for. Use only short sales in the comparables as that data gives you a valid reference of price. Fair market sales are generally higher than short sales in selling price, while foreclosures sell for less. Comparables add to your strength when presenting an offer and should be included in your offer.
While an owner lists a short sale home, it’s the lender that must approve of the selling price. Be aware of homes listed far below the short sale market value for a neighborhood. In many instances, that price has not been approved by the lender and the seller and his agent are looking to attract buyers who will then enter a bidding war for the property. Once the highest offer has been reached, the seller presents the offer to the lender for approval. A pre-approved price is better for a buyer because you know the perimeters the lender is willing to work with. Offer 10 percent to 15 percent under the pre-approved price. Also know what the acquisition price is. That includes the purchase price, plus any liens on the property and past homeowners association dues. You may be asked to cover those outstanding debts in order to secure the purchase. These amounts are negotiable between the buyer and the lender.
When your offer is presented, include your comparables to defend your offering price, as well as the mortgage commitment from your lender. Paying with cash puts the buyer at an advantage and cash is most attractive to a lender-seller, but a conventional mortgage, pre-approved for a specific amount, with a large down payment is also a strong offer. Include a large deposit to show the lender that you’re serious about buying the house, and agree to increase the deposit once the purchase has been lender-approved.
The fewer contingencies you have in your offer the better it is. Submit your paperwork to your lender for final approval immediately to clear the financing contingency. Ask your lender to extend the date that the loan can be funded as short sales take longer to close than fair market or foreclosure sales. Hire a home inspector, but don’t expect the lender to make minor repairs or to renegotiate the price based on the findings of the inspection. A tactic you can use if a major fault is found is that the fault must be disclosed to all future buyers. This might encourage the lender to make the repair and save your deal instead of losing the sale and having the house put back onto the market. Termite remediation can be negotiated, often successfully.
- Bankrate.com: 5 Buyer Mistakes in a Short Sale
- RealtyTimes.com: Buying Short Sale
- Housing Predictor: Negotiating a Short Sale With Success
- Orange County Register: Strategy Can Play a Part Buying Short Sale
- Fair Isaac Corporation. "Research Looks at How Mortgage Delinquencies Affect Scores." Accessed Aug. 9, 2020.
- National Association of Realtors. "About SFR." Accessed Aug. 9, 2020.
Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.