If a low-priced short sale catches your eye, it’s important to do some research before you jump in.

Unlike regular sales or even foreclosures, things are not what they seem with short sales.

Here are the 8 things to know about short sales before submitting an offer:

1. What is a short sale?
When a homeowner can’t pay their mortgage and the market value of their home is less than what they paid for it, they don’t have many options.

• Option 1 is to simply let the bank foreclose on (or repossess) your home, which could ruin your credit history for up to 10 years.

• Option 2 is to try to sell the house at market value, give all proceeds to the lender, and ask for forgiveness for the rest of the loan amount. The lender won’t necessarily agree to this, but when they do, it’s a short sale.

2. What is the benefit of the short sale?

• For the seller, the benefit is a minor impact on your credit history. A short sale will generally ruin your credit for 2-4 years, much less than a foreclosure. The other benefit is usually living in the house without a mortgage for the duration of the short sale.

• For the bank, the benefit is not having to go through the costly foreclosure process, only to end up selling for less (or risk owning the home for an extended period of time). The bank isn’t in the real estate business, nor does it want to be, so if the short sale makes any sense, they’ll take it. However, they will try to get the maximum price for the house.

3. What is the process of buying a short sale?

• First, the buyer must be prepared not to see any inspections or too many reveals of the home they are bidding on because the seller will do the bare minimum to sell this home. The seller is not going to spend any money on any inspections or repairs because he is in financial trouble and has no money to spend.

• Once the buyer views the property and does their research, they will submit an offer just like any other transaction, with the only difference being that the short sale addendum contains various short sale disclosures and explanations.

• At this point, 95% of the time the seller will accept your offer either as the first offer or as a backup offer if you already have an accepted offer. This acceptance means NOTHING, so you don’t want to schedule any inspections or allocate funds to the house at this time.

• The offer is then sent to the bank for approval. This process can take between 1 month and 2-3 months typical, but I have heard horror stories with short sales taking up to 2 years to be approved.

• The bank will accept your offer, counter your offer with what they would like for the house, or ignore your offer.

. * If your offer is accepted, you proceed like any other transaction.
. * If your offer is ignored, it’s up to your agent to follow up for a response.
. * If your offer is countered, it is up to you to accept the counter price or counter with a new price, which causes the process to restart, although it is usually much faster than the first waiting period, you can expect to wait. another month or two for an answer.

All of that aside, here’s what’s important to know and keep in mind before proceeding with a short sale:

1. Short sales always take other offers (and the one you’re looking at is no different).

• This is because sellers never know if the original buyer will still be there when bank approval arrives.

• The only time a short sale listing won’t accept other offers is if something illegal is going on with the listing agent or the sellers: both or one of them is trying to defraud the bank.

2. The bank has the right to discard the current offer and accept any of the backup offers, if it so wishes.

• This can work for or against you depending on how strong your offer is.

3. The goal of a short sale listing agent is to submit an offer to the bank as soon as possible, as it can take months for the bank to respond with any kind of response, so standard operating procedure is to price a short sale below the market. value to get a quick offer and send it to the bank right away. Once the bank comes back with an approved price, a short sale is MUCH MUCH easier for the listing agent to sell because they can bring in a new buyer, offer that price, and not have to wait months for the bank to respond.

• If you see that the house you are interested in is an “approved short sale”, you need to find out what the approved price is, because it is often not the list price. If this price is acceptable to you, this is a great opportunity to buy a short sale without going through a painfully long wait.

4. So the most important thing to keep in mind with a short sale is that the asking price means nothing. (Even less than a regular seller).

• For example: The list price of the house you are looking for is $575,000 and you offered the asking price. Two months from now, the bank could come back and say “we’ll approve it at $675K” as a counter offer. Why such a big difference? Because the listing agent priced the house low to get a quick offer, and you didn’t do your research, so if you can’t afford a house for $675K, you just wasted 2 months waiting for nothing.

• You or your real estate agent should do your research, find the right comparables, and really understand what the home’s market value is, not just look at the listing price.

• If the main thing you like about this house is the low price…it’s not going to happen.

5. Generally speaking, making a backup offer on a regular sale is a bad idea because it only encourages the current offer not to back down since the house is so desirable that someone else has made a backup offer. With a short sale, an endorsement offer is a good idea because the original buyer will likely find another home by the time approval comes. Even if they don’t, if you bid stronger than the first bid, there’s a good chance the bank will pick yours, even if you’re not in first place.

The key things to keep in mind before submitting an offer on a short sale are:

• The most likely sale price of the house
• Understand the long waiting period before approval.
• Understand that you should continue your search for more homes, as the probability of participating in a particular short sale is quite low.

If you want more information about homes for sale in the Bay Area, or are curious about short sale prices in your area, or want to speak with a real estate agent about the possibility of buying or selling a home , contact RezRealty today!

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