Ah, the mysteries of short sales!
While many consumers think that short sales are things of the past, we often still see them in our market place.
A short sale is when a seller needs to sell their home for less than what they currently owe on their mortgage. This makes their mortgage payoff “short” of the full balance due. They must obtain third party approval from the lender to sell their home.
Most consumers think they can find a real bargain on these types of sales, but that simply just isn’t the case.
When a homeowner has to participate in a short sale, they must send a tremendous amount of financial information to their lender and complete a short sale application. They will have to write a hardship letter as well, to ensure that they qualify for the short sale.
The majority of lenders do not give the seller a specific price at which to list their home. Most sellers have their realtor complete a market analysis, and then list at the current market value for their home in its present condition.
Many people have the idea that homes being sold as short sales are always in poor condition, but that’s a myth. Many short sales are in wonderful condition; the owner just hasn’t been able to recoup enough equity in their home to sell as a regular sale.
For a buyer, it is also important to know whether the seller of the home has started this process. It can take several weeks to supply all of the information the bank requests, so if a seller has done it ahead of time, the short sale will begin more quickly.
Once a contract has been sent to the lender, the negotiator will set up a file, collect all required documents, then order a broker price opinion (BPO), which is basically the bank’s version of an appraisal. The bank wants to ensure the property is being marketed at current market value and not being sold for less than what they should be able to sell it for.
The process from initial set-up to BPO can happen within a couple of weeks or take a couple of months, depending on the bank.
Once the BPO has been completed, the file is sent to the investor of the loan, and they determine if the contract sales prices is still within market value and acceptable, or if they are going to counter the buyer.
Once this part has been done and resolved, an approval letter is issued with the agreed upon terms of the sale. The bank will state whether or not they are willing to excuse the deficiency, whether or not they are requesting a promissory note, and all other reporting terms.
The seller has the right to accept and sign the letter, not agree to the terms and counter with the bank, or reject the offer.
Once all terms have been agreed upon, settlement typically takes place within 30 to 45 days. That’s typically when all contingencies begin, such as the home inspection, financing, appraisal, etc.
The entire short sale process can take three months. I’ve also seen it take more than one year. It depends on who the bank is, who the investor of the loan is, the financial situation of the seller, the market itself, and occasionally some outside circumstances.
It is important for all parties to understand the process and work as a team to move forward to closing as quickly as possible.
It is of utmost importance to work with a realtor who has experience with these sales, who can help navigate the process for the most successful outcome.
Are short sales short? No, not always. But to be able to buy the home of your dreams, they are often worth the wait.
For more information, call the Amy Cherry Taylor & Associates Customer Service Line 9 a.m. – 5 p.m. Monday through Friday at 540-632-2824, or reach me directly at 703-577-0135. Thanks for reading!
Amy Cherry Taylor
Editor’s Note: Do you have a real estate question you’d like Amy to answer? Send it to [email protected]
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