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Q: I'm thinking about making an offer on a short sale. What questions should my agent and I ask the listing agent to make sure the transaction goes smoothly?
Fiona in Mill Creek, WA
A: Short sales are complicated transactions even for those highly experienced in short sale negotiation. Properties that are represented by agents with little or no short sale experience can cause considerable headaches to buyers. Here are a few questions you can ask to determine whether you want to move forward with an offer.
Who are the lien holders?
The amount of time it takes to process a short sale varies greatly from lender to lender. The listing agent should be able to tell you who the lien holders are, and the average number of days the lenders take for closing. This will help you decide whether the lender timeline matches your timeline.
Who is negotiating the sale? How many short sales have they closed? Do they have experience working with the seller’s lien holders?
Real estate agents, attorneys and mortgage brokers are the only individuals that can legally negotiate a short sale. If the negotiator is a real estate agent, they must be listing or co-listing the property – they cannot legally negotiate the sale unless they are part of the listing agreement.
Because of the complexity and ever-changing nature of short sales, you want to make sure the negotiator is highly experienced. That means they’ve closed a minimum of 100 short sales and have worked with a broad range of lenders, including the seller’s lien holders.
Are there any additional costs to negotiate the sale? If yes, who pays those costs?
If the negotiator is a real estate agent, negotiating the short sale is part of the service that they provide when they list or co-list the property. There is no additional fee to anyone.
Attorneys typically charge a fee of 1-2% of the purchase price to negotiate a short sale. The lender may be willing to pay their fee, but more and more often they’re not. The seller typically is undergoing economic hardship and doesn’t have the funds. That leaves the listing agent, buyer or buyer’s agent to pick up the attorney’s fee. Before you make an offer make sure you have in writing who is responsible for the negotiating cost.
Is there someone dedicated specifically to follow up with the lender? How often do they follow up?
For a short sale to progress smoothly it is essential that the negotiator has a system to follow up regularly with all the various lender departments that are involved with the short sale. The negotiator can never assume that just because they have sent the correct paperwork, the lender is moving forward on the sale. We call lenders daily to make sure the right people have the right information to close the sale in the shortest possible time.
Martin Goldberg is a Windermere broker in Bellevue, WA and co-founder of Washington Property Solutions, a short sales negotiating company. Since 2003 he has helped more than 900 homeowners sell their homes. A Bellevue native, Martin graduated with honors from the University of Washington Law School and is a Certified Distressed Property Expert. He loves to travel and has visited 49 of the 50 states. You can learn more about Martin here or at www.washortsales.com.
Often when a bank forecloses on a property owner there is a gap in time between when the owner moves out of the home to when the bank sends a representative to check on the property. In some situations it could be a couple months. In areas with cold winters like Missoula, these laps in time can be the difference between a great home and one that leaves more questions than answers.
The most common situation that I see is when the owner leaves the home and stops paying the heating bills. The heat is turned off and the pipes freeze. By the time a representative gets to the home it is too late. The pipes have burst creating water damage. This is the case in majority of the Bank Owned properties that we see in the winter and spring.
Missoula Homes – Short Sales , REO and Foreclosure Homes
With changing market conditions terms like Short Sales, REO and Foreclosure have become every day terms over the last few years. Although our Missoula real estate market is up 16% in absorption from this time last year, these properties are not likely to go away any time soon. In fact we will most likely see an increase even as our market stabilizes due to the long turnaround times in the foreclosure process. Homes that are being foreclosed on now are homes that started the foreclosure process at least 6 month earlier and in some cases almost up to a year ago.
Since these properties are likely to be around for awhile it is important to understand that the difference is between a Short Sale, REO and a Foreclosure property and how it could affect how an offer is presented and accepted.
When owners decide to stop making the payments on their loan the foreclosure process or the banks process of taking the property back from the owner is started. In Montana it takes 6 months to complete a foreclosure and sometimes longer depending on the bank. After 6 months the home goes to auction on the courthouse steps. Most often the highest bidder at the auction is the bank trying to protect their investment. If the bank is the highest bidder the property becomes REO property or REAL ESTATE OWNED (Bank owned).
Sellers in foreclosure are often in distress and often price the homes aggressively to get them sold.
Short Sales are properties that are being sold for less and what is owed on the property. For example if $300,000 is owed on the property and you are purchasing the property for $275,000 you are asking the lender to take $25,000 less or shorting them from what is owed.
Many times lenders are willing to take a hard look at a short sales because in the long run, taking what they can get and closing the loan will save them money compared to the risk and legal fees associated with taking the property by foreclosure and putting it back on the market. Short sale is usually in foreclosure meaning that the owner has stopped paying on the loan. The owner still owns the property and the bank has started the process to take the home back.
What to know before you make an offer!
- To complete a short sale the current owners need to be active and have a vested interest in getting the offer through. Banks will need hardship letters and financials from the owner showing why they are requesting a short sale.
- Most of the time the price that a short sale is listed for does not guarantee that it is the price that the bank will accept. The banks are looking for offers and lower the price until they have an offer to look at. The bank will evaluate the price after an offer is submitted to determine if it will work.
- Depending on the Bank, the process can be long just to get a response from the bank.
- WORK WITH A REALTOR WHO HAS COMPLEATED THE PROCESS! There are many details that need to be worked out and working with someone who is just figuring out the process can be the difference between a great deal and no deal.
REO – Real Estate Owned
Properties that have been taken back from the bank are called REO properties. Traditionally banks do not want to be property owners so they will resell them in an effort to recoup their investment. Out of the three types of properties REO homes are the easiest to purchase. By this point the bank has an idea of what they will settle for and have committed to selling.
With each type of property it is important that you are working with a buyer’s agent to help you through the process. When you are dealing with Short Sales, REO and Foreclosures, the sales process is anything but cut and dry.
The trade off is that you may be able to maximize your value and purchase more home that you would be able to otherwise.
Happy Purchasing Missoula.