With fast-rising home values and that wages haven’t caught up, some buyers may consider purchasing a short sale to stretch their budget.
A short sale is an opportunity in getting good deals. It occurs when there is more debt than the actual price of the property. In these instances, the owner is considered to have a substantial hardship as they can’t afford to pay the debt in full.
Despite the advantages, there are also potential drawbacks. In many cases, the process can take very long with delays in settlement likely.
Why Do Short Sales Take So Long?
In a normal sale, there are only three main factors to consider; the buyer, the seller, and the lender while in a short sale, you’re mixing in another element which is the seller’s bank.
Delays could be caused for a variety of reasons.
Here’s why short sales take so long.
Reviewing The Short Sale Package
The lender requests a complete short sale package from the seller in order to approve the sale. Much like submitting the package to get a loan, the seller must submit their finances. These include records on debts and assets, review their credit score and the contract to purchase the home.
After all, why would the bank approve a bank sale if the seller has $2,000,000 in the bank?
Typically, most banks require a hundred pages in the short sale. Many of those pages need signatures from the sellers, agents, and buyers.
Sometimes disaster strikes and one page is missing. If that happens to package may not be processed.
Generally, the listing agent will submit the pages and wait and sometimes wait for more than a month to get a response from the bank, informing the agent that there are missing pages.
After submitting the documents, it could be weeks to processed the records and hits the desk of the negotiator.
And if the one bank statement is outdated, the bank requires an updated one. The lender will take a week to realize it and another week to contact the seller or the agent.
Not only will the bank requires finances of the seller, but they will also ask for the buyer’s proof of funds, review the preliminary title report or request more verification of the seller’s hardship.
The short sale process is a nightmare with just one bank, imagine two banks and each has its own methods. It could send everyone a couple of months.
If that does not sound like a recipe for disaster, I don’t know what is. Both will need to approve the short sale and sometimes the second lender will require more information.
It is essential to understand the approval timelines and deadlines of each bank to avoid these mistakes.
The Deal Could Die At The Last Minute
Once you get a negotiator on the phone and the bank has a complete package, the hardship does not end there. At any minute the negotiator can counter your offer and renegotiate the terms.
They may decide to only approve the deal if the seller contributes money or reduce agent commissions, There is no way to anticipate exactly what will they come back with.
Advantages of a Short Sale
If you’re looking for good deals, a short sale may be the answer. Homeowners need to find a buyer for their property as soon as possible, so sometimes they’ll list their home for a low price.
As a buyer, you don’t need to worry about the competitors. Short sales take a while to process, that means fewer people are having an interest in purchasing the property.
You are also sure that the home is not neglected, because most of the time the sellers continue to occupy the property and there’s less opportunity for vandalism.
If you can wait a few extra months to close this could be a great opportunity to purchase in an area you may not otherwise be able to afford.
Disadvantages of a Short Sale
As mentioned earlier, one of the drawbacks of the short sale is the span of the process it needs. The time is enough for some home buyers to avoid short sales.
However, that is not the only reason. Sometimes it is not worth the wait, and it often happens that the bank decides to set a competitive price. The time you wait for the deal to finish will be wasted.
Most short sales are marketed in as-is condition because of the seller’s financial hardship. That means that if a major issue comes up in the home inspection report you may not be able to negotiate repairs. You can still opt to void the contract depending on the terms of your initial offer. But should you decided to proceed with the sale you’ll spend money making those repairs.
Are you thinking about buying a home soon? Check out our Steps to Buying a Home Guide. Feel free to give me a call at 703-539-2053 or email [email protected] to schedule a private buyers consultation.
- Seven Things to Consider When Purchasing a Short Sale
- Pros and Cons of Buying a Short Sale
- What Does it Mean When a House is Listed As a Short Sale
About the Author: The above article was written by Abraham Walker, Your Northern Virginia Real Estate Agent, helping clients market their homes to achieve high sales with a quick closing time is my main priority. He’s the co-founder of Ask A Walker and can be found on YouTube, Facebook, and HERE on this blog.
I can be reached via email at [email protected] or by phone at (703)539-2053. I’m happy to answer all your real estate questions.