Short Sales: What you need to know
You may be here for a couple of reasons. If you need help with your home and need to sell right now, we can do a lot to help those in need of immediate assistance.
If you're an investor interested in purchasing a short sale home at below market value while helping a homeowner avoid negative equity problems or foreclosure, there's a lot to know and we can help you with that, too. Below, we've answered many of the most commonly asked questions regarding Short Sales, Pre-foreclosures, and Bank-Owned REO properties. As always, we could never answer every question here or use the amount of detail they truly deserve. If you have questions, a qualified professional is available to assist you with your needs and make sure you find what you're looking for.
Short Sale Defined:
A short sale is a type of real estate transaction where the seller is in some sort of personal or financial distress. It may be due to a financial hardship or sometimes, simply a market hardship associated with the need to move immediately. In most cases, the property value is not sufficient to pay off the mortgage plus all costs of sale. In this situation, the lender is asked to reduce the payoff to pay the costs of sale and allow for the home to be listed and sold at market value, many times even well below its market value.
How long does it take to buy a short sale?
Answer:It depends. Unfortunately, there is no great answer to this question. Smaller banks are usually faster but they're also sometimes the most difficult to work with. Larger banks have to go through many different levels of approval and they're working with more short sales overall, so they take longer. But, they have specific rules which are pretty much standard for all properties and you generally know what to expect. On average, a short sale can be negotiated within 3 to 8 weeks. Again, it is possible to get an answer from a smaller bank in as little as a day or two, while some larger banks like Bank of America/Countrywide can take up to 4 months.
How much can I save if I buy a short sale listing?
Answer: The typical short sale can be purchased for about 92% of its current market value, when taking into consideration all of the property's defects. Banks will sometimes go much lower, as low as 50% in rare instances but the usual reality is that you have the opportunity to make a purchase of a home at a price that is a good value for its condition and not set to simply satisfy the mortgage payoff. Short sales tend to appear much cheaper when placed on the market alongside standard listings because of that mortgage factor. Standard listings must be priced to satisfy the mortgage and all costs of sale. It can be deceiving though. The fact that 10 homes may be listed at 200k in a neighborhood, does not mean that homes in that neighborhood are worth 200k. Sold listings must be evaluated and oftentimes, you'll find that sold listings go for a lot less than the active "not sold" listings on the market now. Because short sales are priced comparable to those which have actually sold, they are usually the best priced home in their respective market.
Should I use a buyer agent when purchasing a short sale?
Answer: Normally, a buyer agent is a very good idea. In standard real estate transactions, the listing agent's primary job is to get the seller the best price for the home. This is, of course, in contrast to a buyer agent's role which is to get the buyer the best price, too. However, in a short sale transaction, the seller and the buyer both have the same goal: To sell the house. The seller is mostly concerned about getting the home sold, not the final sales price because the bank is making that decision and taking the loss, not the seller. The seller's liability to the bank may be greater if the bank loss is greater but the reality is that the liability is a nominal consideration if the home doesn't sell and gets foreclosed on. So, the seller is most focused on getting the home sold, at any price. The buyer is focused on buying the home, at the lowest price. Because the so-called "Short Sale Specialist" listing agent is representing the seller, not the bank, a short sale listing specialist is in a unique position to assist both clients as a "Dual Agent" with very little to no conflict of interest. And in fact, we find that the success rate of listings where we are a dual agent is a lot higher than it is in listings where a buyer agent is involved. This is probably due to the breakdown in communication that can occur when multiple individuals are involved in anything. If the bank tells us something which must be then filtered through another person (the buyer agent) and then to the buyer, the significance or meaning can be lost in translation. In general, we feel that it is best to contact the listing agent directly with short sale transactions and to utilize the services of an exclusive buyer agent in all other deals. This is simply our opinion and there is much to know about specific rules and disclosures regarding Dual Agency in North Carolina. Please review this document for more information.
Am I purchasing the home from the bank, or from the original homeowner?
Answer: Short Sale listings are also known as pre-foreclosures because they occur before the foreclosure takes place. This means that the homeowner still owns the property and is technically 100% responsible for making all the decisions. The reason for the bank negotiation is simply to attain their permission to sell at a specific price. With that permission, the bank is grating the seller the right to have the lien release from the home for an amount less than what he/she owes. Once that permission is granted, the homeowner then signs all the documents, and goes to the closing just like a normal closing with very few differences.