Most people know the basics to buying a home: talk to a banker or mortgage broker, get pre-qualified and start the search for your new home.
Nearly every buyer wants a bargain – we are a society of bargain hunters and we shop accordingly. And why not? In most areas 
of the country, it is truly a buyer’s market – buyer’s are almost brutal with their low offers and demanding contracts.
There is a huge surplus of inventory and fewer buyers. Every seller vys for the qualified buyer hoping that their house will be the buyers choice. As most any Realtor can attest, pre-foreclosures and REO’s (Real Estate Owned) are making up a larger percentage of the inventory at a very quick pace. Failed short sale offers wind up as REO’s and back on the market – sometimes at deep discounts.
More often than not, one of the best ways to create front-end equity is to buy a house via a short sale. In a nutshell, a short sale is when the seller’s lender or lenders agree to accept less than the full amount of the debt when the house is sold.
5 QUICK TIPS:
1. First and foremost, find a Realtor with whom you are comfortable and who has experience in successful short sales. Many real estate agents dabble at short sales or are learning short sales but look for a Realtor with a proven track record. As a buyer’s agent, your agent won’t be able to negotiate the short sale for you, but the experienced Realtor will know the right questions to ask of the listing agent and short sale negotiator to determine if the process is moving along and to guesstimate just long the ‘wait’ period will be. Your Realtor will also know if a third-party negotiator should be hired to facilitate the short sale.
2. Get “Buyer Ready”. Most lenders require a buyer pre-approval letter or proof of funds to submit along with the offer. The stronger your letter, the better it looks. Allow your lender to pull your credit, provide any documentation (proof of income, employment, etc.) the underwriter will need, etc. The goal is to handle any financing hiccups now rather than later. Once your offer is accepted, the pace will be very fast – there won’t be time to cure hiccups later. Short payoffs want quick closings.
3. Be prepared to wait. The time you have to wait depends on exactly where in the short sale process the negotiations are at. Many times, the listed price is a speculative price rather than a negotiated asking price. Your Realtor will obtain this and other pertinent information from the listing agent to help you decide if the house you selected is “worth the wait”.
4. Timing. When buying a short sale, timing is critical. All time sensitive contract contingencies such as financing and inspections should commence upon the short-sale lenders written acceptance. Your contract should include a Short Sale Addendum or language specific to (1) approval of the seller’s lender of the contract and HUD-1 and (2) Time periods commencement upon seller’s lender approval. Never accept a verbal. A wise old attorney once said: “If it ain’t in writing, it ain’t so.”
5. About the utilities. Typically, the seller is responsible for having the utilities on so that the buyer can make inspections. Don’t be surprised if the seller does not or cannot turn on the utilities for your inspections. There has been more than one occasion when a buyer had to turn on utilities – it’s not as bad as it sounds. In most cases, even if the deal didn’t close – the buyer spends less than $50 (turn on fees & minimum usage, deposits are fully refundable). By the time the buyer is ready for inspections, the buyer should already have the acceptance from the short-sale lender and a very strong comfort level of approval with his own lender. Once the short sale lender has accepted the offer – the closing typically takes place in 30 days or less.
Buying a house via a short sale is one of the best ways to get front end equity and hedge off declining value issues.
If you can afford the time,
a short sale may very well be worth the wait.
Tags: Behind in Payments, Foreclosure, short sale
May 1, 2008 at 4:45 pm
Excellent Article.