How to Buy a Short Sale

As a home buyer looking for value in the purchase of real estate you may find that a “short sale” property is your “best bargain”. Understanding the process and working with qualified professionals will improve your chances of a successful transaction. Utilize the services of Realtors, attorneys, accountants, mortgage lenders and home inspectors as they all provide expert advice.

The short sale is not a typical real estate transaction. You must understand that you will be negotiating a contract with the Seller subject to lender approval and with no guarantees that your offer will be approved. In order to prevent foreclosure, the Seller may have only one opportunity to “sell short” and must have an offer that is likely to be approved by the lender. Many Realtors provide guides such as NH Foreclosed Real Estate. The following guidelines will improve your chances of a buying and closing on a short sale listing.

Have evidence that you are a qualified buyer as sellers can’t accept your offer. Obtain a credit approval from a reputable lender or if a cash buyer provide proof of funds. You must be qualified to purchase without selling an existing property.

Sellers selling short typically have a time-line they must meet to avoid foreclosure. If they have not communicated with their lender(s) and started the process, there may not be sufficient time to affect a sale. If you are working with a Realtor, they should obtain this information on your behalf.

1. Is the seller’s short sale package prepared for submission to the lender?
2. How many liens are on the property? If more than one, what are they? Is there a plan to satisfy all the lien-holders?

The first step is to have your offer accepted by the Seller and you will be competing against other buyers.  Some real estate agents market the property substantially below market value to entice buyers.  Others price the property at the low end of fair market value.

1. Sellers and lenders prefer offers with fewer contingencies.
2. Earnest Money - Sellers may be hesitant to accept your offer with a low deposit.  Buyers can easily “walk away” from a contract with low deposits.
3. Home Inspection - be prepared to invest the time and money in the home inspection prior to lender approval.  A seller may not want to take the risk of allowing the inspection after lender approval.  If they do, they risk losing the buyer on the inspection issues and will not have time to sell the property prior to foreclosure.
4. Flexible Closing Date – once the lender approves the offer, they may require a “quick” closing.  You must be prepared to meet their conditions if you want to consummate the sale.
5. Subsequent offers – the listing agent must submit all offers to the Seller.  A contract with a higher sales price may have a better chance at being approved by the lender.  The lender will give the Seller direction as to submitting additional offers.   

Lenders have no set formula that will determine the sales price of the property. However, Freddie Mac (one of the largest secondary market lenders) has a target sales price of 88% of the broker price opinion (BOP). Lenders will do their “due diligence” to substantiate the value of the property.

1. Have realistic expectations of the time-frame for approval as it may take between 30-180 days and property values can change.
2. Be prepared to lock your interest rate thru closing so that your mortgage commitment will be valid.