Buying a Short Sale Home – Things You Should Know

While you are scanning the net for homes for sale and you spot a short sale home that interests you make sure you not to get too excited too fast. Before you get all juiced up about the possibility of owning this home make sure you pick up the phone and call your Realtor. They will need to research that short sale listing first. In some markets less than one in 10 short sales actually closes. Just because that home is listed as a short sale doesn't mean it is actually for sale (because it must be approved by the lender), nor does it mean it will sell at the listed price. Here are some things you need to know before attempting to buy a short sale.

What are the Listing Agent's Short Sale Procedures

agents are required to live by the Code of Ethics, to treat everybody fairly but not every agent is a Realtor. This means that the short sale listing agent may decide to submit only one offer to the seller and hold back other offers. Withholding other offers may be considered a violation of the fiduciary relationship between the listing agent and the seller. The seller is entitled to receive the highest and best price, including all offers. Be sure to realize that even if your offer is submitted to the bank while waiting for short sale approval, another buyer could outbid you. Let the seller know if you are willing to raise your price if it becomes necessary.

That Short Sale House - Comparable Sales

Most short sales are priced below the comparable sales but yet they are priced in line with pending sales. This is because short sales take anywhere from 3 to 4 months, on average, to close, and pending sales will become the comparable sales at closing. Some short sales are priced so low that the sellers' bank is never going to accept them. These types of listings usually receive multiple offers. To get your offer accepted, it will need to be priced near market value. If you're not prepared to pay above a artificially low price on a short sale then you should pass. Generally, houses being sold by a we buy companies should not be included in the comparable because they are sold on the investor market.

Number of Loans, Loan Amounts and Lenders

Ask your agent to research how much is owed against the home and find out the number of loans on it as well. A second or third mortgage lender will take pennies on the dollar compared to the amount a lender in first position will receive. Some lenders get a reputation for being difficult to work with. If your agent is an experienced at short sales they will know who these lenders are and can advise you of the difficulty you may encounter. If your offer is 30% or 40% of the mortgaged amount, it is unlikely that your offer will even end up on the bank negotiator's desk.

Short Sale Listing Agent's Record

A listing agent who is marketing a short sale but has never closed on one will be a risky proposition for you. This is because it's up to the listing agent to submit the short sale package to the lender and to negotiate with them. Your buyer's agent won’t be able to talk to the bank. Some listing agents use outside processors to do this job and the results of those negotiations are sometime a bit sketchy. Do you want to risk rejection of your short sale purchase because the listing agent has no experience?

Short Sale Seller Qualifications

Some sellers do not cooperate and are slow to turn in required documents. Others have never been told by their agent that these documents are mandatory. You don't want your short sale purchase delayed because the listing agent doesn't have the required documents.

Find out if the listing agent has received a completed short sale package from the seller, and ask about the contents of that package. A complete short sale package consists, at minimum, of the following:

• Bank statements
• Sellers' hardship letter
• Tax returns
• W-2s
• Payroll stubs
• Financial statement

Number of Short Sale Offers Received

Houses listed below their actual value will receive multiple offers. An agent is not required to disclose the terms of those offers, but you do want to know how many offers you are competing with.

Here's how it usually works:

• When a short sale first comes on the market, the first offer will most likely be just below the list price.
• The second offer at around list price.
• The third offer will be slightly higher.
• The fourth offer will be significantly more.

You want to make an offer that will beat the competition yet still be below market, or don't waste your time jumping through all these hoops.