Short Sales - Managing Buyer Expectations

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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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February 27, 2008 · Filed Under Frederick Foreclosure, Frederick MD Real Estate

Comments

9 Responses to “Short Sales - Managing Buyer Expectations”

Kristal Kraft on February 27th, 2008 9:13 am

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.
gotbob on February 27th, 2008 9:59 am

KK, Thank you for pointing that out. I know Colorado has its share of foreclosures.

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Annie on February 27th, 2008 5:49 pm

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.
gotbob on February 27th, 2008 6:38 pm

Annie, sometimes it is worth the hassle…we’ll cross that bridge if needed.
Demystifying Some of The Issues Surrounding The Purchase of A Home on Short Sale | Cleveland Real Estate News on February 28th, 2008 8:41 am

[...] writing and good explanations. Bob Carney who manages a real estate office in Frederick Maryland does a really good job explaining some of the points about Short Sales. In a nutshell, a short sale is something home owners can do when listing their [...]
Dan Eckenrode on February 28th, 2008 9:32 am

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.
gotbob on February 28th, 2008 4:14 pm

Dan, How about a rehab loan? What are the chances of getting a rehab loan on a foreclosure?
Cyndee Haydon on February 28th, 2008 11:52 pm

Bob - several of our buyers had to wait 5 months to get bank approval - it will definitely test your patience - great post!
gotbob on February 29th, 2008 7:59 am

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.