8 Things to Know About Buying a Short Sale Property

It has been said that “there is nothing short about a short sale,” and with good reason. The fact of the matter is that short sales are here to stay, and over the coming years will become more and more popular for buyers. Many times, properties in foreclosure are terribily run down, damaged, and vacant. When buying a short sale, you have the opportunity to get a fantastic deal on an occupied buildng in good condition… the only downside is the wait. Here are a few tips to maximize your short sale buying experience:

If you can find an “approved” short sale, the transaction will go through quicker than an “unapproved” transaction
– An owner who is considering a short sale on their property cannot begin to seek approval until after the first offer is received. It typically takes the bank months after the submission of this inital offer to give an approval or denial of the scenario.

– If the scenario is already “approved,” it means that the seller has been approved as well. They have sufficiently proved their inability to pay the mortgage, and the bank is willing to accept less than the loan amount. Proving the seller’s inability to pay is half of the short sale battle.

– If the “approved” short sale is still on the market as “active,” the initial buyer has likely grown tired of waiting & opted to not follow through with the contract.

The sales price is typically set by the agent & seller, not the bank
– Many times, the seller & their agent will list a short sale for significantly below market value in order to attract many offers. The bank is often unaware of the asking price, but will still have a voice in deciding the final sales price.

– If many offers are received, some agents do not submit all offers to the bank for consideration.

Banks do not repair short sale properties
– It is important to remember that many times, the seller of a short sale property has run out of money, and cannot afford the property upkeep. The banks do not typically do repairs on these transactions, so it is important to have a solid inspection period in your contract.

If the seller has 1 mortgage, the short sale is far easier than if the seller has 2 mortgages
– When purchasing the property, if the seller took 100% financing in the form of a first and second mortgage, the short sale transaction will be far more complicated than if the seller had taken only one mortgage. Not only were these transactions more risky, there are now two banks who are each expected to take a loss. Coming to agreement typically takes additional time & is far more difficult to get to approval.

It is important to check comparable sales & offer market value
– If a lowball offer is made, not only will the transaction be delayed, it will likely be denied. When an offer is received, the bank will send an appraiser to give market value of the property. They will expect to receive market value, else they will not approve the short sale.

When the seller owns many properties or has strong financials, the property may not be approved for short sale
– We have seen banks request hundreds of pages of leases on properties in cities far from the subject property, in order to prove that the rents from those other properties will not make up the difference for the property in question. If the seller cannot prove a legitimate hardship, the property will not qualify for a short sale.

– At times in this scenario, the bank will approve the short sale, but require that the seller make up the difference through a promissory note.

Upon approval of your contract & the short sale scenario, it is IMPERATIVE that we close on time
– Once the bank sends approval of the short sale & you “win” the contract, it is of the highest importance to stay on the ball & get closed on time. If there is a delay, the bank has the option to require re-submission of the contract & scenario, or to raise questions about the legitimacy of the deal. Many times, they will simply pull the deal. So long as you stay organized & on top of things, there should be no trouble.

Do not get emotionally attached to the deal
– Because short sales take such a long time and are fickle when compared to other transactions, it is important to not get excited about the transaction until after approval has been delivered from the lender. Many buyers continue to look at alternative properties until approval is received.

All-in-all, short sales are a fantastic way to get a great deal on a property. So long as you remain educated on the unique qualities of the transaction, it is fully possible to make a short sale a profitable & enjoyable transaction.

Our team has much experience dealing with even the most complicated short sale scenarios. Let us know if you would like to find one for yourself… call 305-741-5441 or email sarahelles@kw.com.


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