Buying a short sale

Buying a short saleThe end of the 2013 first quarter in Connecticut showed a marked rise in short sales. 42% of all homes sold were short sales.

Short sales are on the rise in Connecticut. Other parts of the country are seeing a decline, they have been through the worst of it. But for us here in Connecticut, they are becoming more and more the norm rather than the exception.

Short sales are not confined to one area, to one price point. We are also seeing them pop up even in the luxury home market.

For both buyers and sellers it can be very, very frustrating. Sellers often go through multiple buyers before their lenders agree to a realistic price, buyers cannot wait that long. Despite the best efforts of all, patience, a thorough understanding of the process, more patience and time are required.

For sellers, please visit our website we have dedicated to selling your home in Southern Litchfield County. We have more detailed information to help you understand the process. You can also request more information from us which we will send to you.

Buying a short sale in Southern Litchfield County.

As I write this, 37.5% of all the homes that are in a pending sale status in New Milford are short sales. That is a big chunk of them, and the bulk of those are listed below the $300,000 mark. That tells me many of those buyers are first time home buyers who are staring at their computers and cell phones waiting for that email to come through with some news.

And waiting and waiting… and waiting.

Often times there is no information coming from the other side. It is not because they aren’t working on, or because they are ignoring you. It is because…there really is no news. Nothing. And they can’t GET any updates for you. Because there might not be any.

I get very frustrated for my buyers too. There is nothing I can tell them. And I do mean nothing. So, everyone waits. The buyer, the seller, the buyers agent and the sellers agent. Everyone waits. Of course there are some that go through relatively quickly. I hear agents brag on it, but I have yet to have it happen. It often depends on who the lender is, who is doing the negotiating, is their more than one mortgage, are their any other liens on the property, who is handling the file at the lenders end… the list goes on and on. There is nothing typical. What was one person’s cake walk from a particular lender suddenly becomes the next persons worst nightmare. No rhyme or reason.

So, with short sales on the rise here it can often feel like the ONLY option for a first time home buyer. Before making an offer a buyer needs to understand this process is not a short one. And you need to decide if this is going to work for you.

Is time on your side? You will need time to wait for an approval from the sellers lender. And lots of it.

Your own lender will typically need 30 – 45 days for your mortgage contingency, then 15 days or more to close on the house after. Not an unreasonable amount of time. BUT… before you get there you need to have an approval from the sellers lender to sell the house for less than what is owed on the property. That takes time, and I do mean time. And if I knew how much time I would have won the largest power ball in history and NOT writing this post because I would be able to see into the future! 30, 60, 90 days or more. It can drag on longer.  With no, and I repeat NO communication from the lender. And once they decide it is a go, they will expect you to close as promised, to meet all your contingencies as per the time line in the contract.

They made me wait, now they can wait.

I remember calling a buyers agent to tell her the lender agreed to the sale price. I said, now the clock starts ticking, so you have 14 days as per the contract for the mortgage contingency, the time frame you insisted on, (no matter what I said) the time frame you said their mortgage company would deliver by. The buyers agent said that her buyers would need more time because they hadn’t done as they said they were doing, they never started anything with their lender after the initial pre approval because the sellers lender made them wait, turn about was fair play! The sellers lender told me there would be no extensions, put the house back on the market as soon as the mortgage contingency date passed.

Important things to consider before you put in an offer on a short sale.

  • What is your current living situation? If you have to be out of where you are by a certain date, that won’t happen. You need to have flexibility, perhaps a month to month rental so that when you find out it was approved you can give your landlord notice. Or family that you can move in with if you lease somewhere and have to be out. And somewhere to store your stuff. This is a big problem for many, not just first time home buyers.
  • Do you have patience? I mean patience, like the patience of a saint. Because you will need it. Seriously.
  • Are you handy? Often times sellers who are in a short sale position have been unable to maintain the property as it should be. And their lender won’t care about that. Usually these properties are sold “as is”.

Your biggest pill to swallow… What do you mean I should do my home inspections up front?

Before the sellers lender has approved the sale at a price I can agree to? Yes, I recommend it to my buyers and insist on it when I list a short sale. The reasons are very important ones.  As I stated above, often times there is deferred maintenance that the seller will NOT be able to address.  And if you are using an FHA or CHFA mortgage you will want to know BEFORE you wait for their lender to get back to you that unless certain things are addressed you can’t get the loan. It takes long enough to get the lender to respond. If you wait till after that to inspect and expect to renegotiate the sale price YOU RUN THE RISK OF GOING BACK TO SQUARE ONE AND STARTING ALL OVER AGAIN! If you know up front what is going on with the house you can change your mind and run away, or you can renegotiate with the seller before the paperwork is submitted to their lender.  

The lender is not going to give it away.

So, you have time on your side and are already on the way to sainthood based on the amount of patience you have and are ready to make an offer on a short sale now. GREAT! But make it a good offer. The seller may accept any low ball offer just to get things started, but the sellers lender has to approve it. They will send an appraiser out to the home to see what it is worth. This is independent of your appraisal and they are irrelevant to each other. It is not a wise idea to look at this as a way to get a really, really cheap house. If you are serious, make a serious offer.

Short sales are not for every buyer. And they are often not a match made in heaven… they can feel like something exactly opposite! But they can be successful. You just need to make sure you have your eyes wide open going into the purchase.

And you have lots and lots of time and patience.

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