Short Sales – Managing Buyer Expectations
February 27, 2008 by Bob Carney
Filed under Featured, Foreclosure, Real Estate Topics
In my continuing effort to provide you with information about Short Sales and Foreclosures, let’s talk about the expectations from a buyer’s side. There have been many lost sales due the lack of understanding of the whole process by either the buyer or the buyer’s agent. I have mentioned before that buyers really want a deal in today’s market. For some reason they expect that deal to be in form of a short sale or a foreclosure. It might just be great deal…however, there is plenty of luggage that goes along with that great deal. The process can be trying on all involved, especially if they don’t know what they are getting into.
- Short Sales will test your patiences – 3rd Party approval comes from the Loss Mitigation Department (which can be understaffed) The approval can take 30-60 days. The listing agent does not have control over this.
- Seller help or concessions are almost nil – Banks do not like to give out anymore money. Prepare you finances ahead of time and don’t count on getting anything back. If there is a counter to your offer price, this will most likely delay the process another few weeks for yet another approval.
- They don’t accept all offers and will inadvertently drag feet for more - Chances are, while your offer is submitted for approval other offers are still coming in to the Seller’s agent. Banks know that if they have reduced and reduced, that it will get to a point that multiple offers will come in (the house is still on the market.) Your Buyer’s agent should be able to evaluate the situation. Days on market, the price change history and how does the price compare to the market value of the rest of the homes. Banks have a secret pricing formula that will ultimately accept, but keep in mind, they want to reduce their losses as much as possible. So they hope for higher than yours.
- What you see is what you get - The property is being sold “As-Is” no warranties, no repairs. You can get an inspection of the property but for “Information Only.” This inspection will most likely need to be done during the “3rd Party Approval” process. Because once this is approved, they want this to close and off the books. And the sellers can wait any longer either…you might be the only hope this family has before Foreclosure. Time is of the essences.
- READ THE FINE PRINT – I say this, because some banks or listing agent addendum’s have wording to the effect of this will be a Quitclaim Deed. In other words they pass title to you, but it’s not necessarily a clear title. Clear title means you own it free and clear of past problems. You won’t get any Title Insurance on this property either. The risk is too high. Maybe there was a HELOC taken out on the property for $50,000 and it was not registered prior to closing…guess who just bought themselves a lien? Yep, you did.
- Again, can’t stress the Patience part enough. To help with this, make sure your agent writes in an “Out” for you. His broker’s lawyer should have something written up to allow the buyer to back out of the contract prior to 3rd Party Approval. I know mine did.
- Last advice, the offer should be clean, clear and complete. If it is unorganized and missing items, this will only create unnecessary delays. I would also suggest that is your best offer or reasonably close…see above about multiple offers, you might not have the chance to haggle a counter offer.
This is by far not the complete handbook on Short sales, but it is a peek in to the process. This process is sometime unique to each of the banks that hold the note. Do your homework and make sure you have a knowledgeable agent on your side. Short sale and foreclosure properties might not be the best deal on the block if you have to do $10,000s of worth of repairs to it.
Now go find your dream home.
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Bob is a licensed Real Estate agent in Maryland and Pennsylvania. You can contact him via email at bob@gotbob4homes.com or call him on his cell phone at 240-285-4918. Bob left the Frederick area to manage a resort office near Deep Creek Lake in Western Maryland. He still stays in touch with the area that he has grown to love. 
Bob Carney
Bob ~ this is good information to have about “short sales.” I can imagine letting a buyer purchase a property from a bank via a “quit claim” deed without title insurance. I am not aware of any short sales occurring in Colorado that way. I can certainly see how a bank might want to try! Actually the “as is” part can be the scariest part of the whole transaction.
KK, Thank you for pointing that out. I know Colorado has its share of foreclosures.
http://www.inman.com/inmanstories.aspx?ID=66214
That all sounds like a big headache. I would only go through with it if I was absolutely in love with the house and thought it was worth all the hassle.
Annie, sometimes it is worth the hassle…we’ll cross that bridge if needed.
Speaking from the mortgage side of things, Bob is dead on. True foreclosures have their perks by getting the home at a good price, but be ready to shell out some money for repairs; especially if the home has been sitting vacant for sometime, not properly winterized, etc. You might find yourself in the end paying more for the house to get it to be habitible. BUYER BEWARE.
Dan, How about a rehab loan? What are the chances of getting a rehab loan on a foreclosure?
Bob – several of our buyers had to wait 5 months to get bank approval – it will definitely test your patience – great post!
Cyndee, that’s a shame. One reason you want to have a ‘out’ for your buyers. So they can continue to look and find another one if needed.
Bob,
I need your advice, sir. My husband and I are in a contract on a short-sale property. We were informed by the listing(and selling) realtor that this house is about 2-3 weeks from foreclosure. He was informed by the lender of this. Another interesting thing is that at one time there was a buyer in a contract, but backed out because they were tired of waiting. There was also another contract that the buyer backed out of. My question is, do you think that our offer will be processed quicker under these circumstances? Thanks in advance for your opinion.
I am sorry I don’t know all the details with the listing agent and the bank, but in my experience; previous contracts with other buyers does not necessarily speed up the process for you. Some banks start the whole process over each time they receive a new contract. I hate to say but banks are their own worse enemy when it comes to short sales. Good Luck.
I need your advice, sir. My husband and I are in a contract on a short-sale property. We were informed by the listing(and selling) realtor that this house is about 2-3 weeks from foreclosure. He was informed by the lender of this. Another interesting thing is that at one time there was a buyer in a contract, but backed out because they were tired of waiting. There was also another contract that the buyer backed out of. My question is, do you think that our offer will be processed quicker under these circumstances? Thanks in advance for your opinion.
+1
I m sorry for your situation, but the banks don’t move any faster at any point. They have processes that the follow and it seems to start over every time.
Great short sale information Bob! That was a good litle tidbit of information about watching out for quit claim deed issues, so few people really understand the dangers of receiving title to real estate without any warranties or guaranties. I do hope you plan on expanding on this post to include information about HAFA, now that it is in effect.