If you are a buyer looking for a quick escrow because your time frame is very tight, avoid writing offers on short sales unless the short sale has already been approved by the bank and the prior buyer has walked away.
Having spent countless hours on the phone with asset managers this year, not to mention sending continuous flurries of paperwork to the banks, trust me: a short sale is not the faint of heart or for the time-pressured buyer.
What is a short sale? In bank parlance, it simply means that the current market value is less than the seller owes on the property. This results in the sale being “short” of the total amount due to pay off the loan note. It is up to the bank to decide whether or not it will agree to accept less than the total loan repayment in agreeing to a short sale. The banks follow several laborious steps in doing so including sending out independent agents to provide a BPO (brokers’ price opinion) to help them determine the current market value of the property. There are several time-consuming hoops that the would-be buyer must jump through, including being willing to take the property completely “as is”. Most sellers are unwilling to spend any money on repairs because they are already losing a bundle on the property; they just want to get the property off their books at the least loss possible. So while private sellers are usually willing and/or required to pay for termite reports and repairs and can be encouraged to offer credits for other needed repairs, banks are often very recalcitrant. To top it off, banks will frequently begin by agreeing to a certain price, only to come back later and ask the buyer for more money. This is frustrating to the buyer and unlike the normal escrow situation, where once a price is agreed to, the seller can’t unilaterally change it.
Going back and forth with the bank can take months; in two cases this year, it has taken my sellers over 6 months to be finally released from the property by closing of the short sale deal. I have known agents who have had to struggle for 12 to 18 months with a bank before being able to get a single deal to close.
Meanwhile, buyers often walk away in the midst of the transaction; either because they are no longer patient, or can’t stomach the repairs/other costs they are being saddled with, or with their continuing to look while waiting, have found a “better” deal and moved ahead on it, closing escrow somewhere else.
There is one window of opportunity where taking advantage of a short sale can be a spectacular win for a would-be buyer: when another buyer has walked away, and the agents on both sides have worked hard for months to get the bank to reach the final price approval stage. At that point, a new buyer can step in and if they can get loan funding quickly, they often save a bundle and avoid the headaches that the previous buyer went through. The key here is to be able to get funding quickly – either an all-cash buyer or a buyer with impeccable credit who is not asking for FHA funding will have the best shot at closing the deal.
How to find such opportunities? Ask your friendly agent to set you up on an auto-notify system in the neighborhoods and property types you are interested in. When a property of this kind pops up on the market – usually as a “BOM” (back on market) listing – your agent will immediately let you know and can rapidly prepare an offer for you to submit.
Natalie Bergman is a licensed realtor, affiliated with the Beverly Hills and Greater Los Angeles Board of Realtors, California Association of Realtors and National Association of Realtors. She and her business partner, Nicole Costas, function as Socal Acquisitions LLC under the Keller Williams Realty shingle.
For more information or to contact Natalie Bergman, visit her website at www.socalacquisitions.com or email her at [email protected]