How to Buy a Short Sale Home

Approximately 60% of all homes currently on the market are short sales. Since short sales represent a majority of the marketplace, you will miss out on a large portion of available homes to buy if you exclude short sales in your looking process.

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Often there is less competition when buying a short sale home versus a bank owned property or a home that is traditionally owned. Because of this you may have a better chance of getting an offer accepted on your terms.

Usually the owners are still living in the home and the home is well taken care of during the short sale period. Bank owned properties tend to be vacant, increasing the chance for them to be vandalized or have items stolen out of the property. Many times previous owners of bank owned properties have already stripped the house of cabinets, countertops, doors, etc. In a short sale, the homeowners have a vested interest to leave the home in good condition prior to closing as they benefit from doing a short sale instead of letting the home fall into foreclosure.

What Do I Need in Order to Initiate a Short Sale?

Along with your original offer you will need to send a pre-qualification letter from your lender. The listing agent will send that into the bank after the offer has been fully executed with the seller’s short sale package for approval. If you are paying cash for the property, you will need to supply a proof of funds, usually a copy of a bank statement showing enough money in the account to cover the cost of buying the home. Both the pre-qualification letter and proof of funds needs to be dated within 30 days of making the offer.

You will also need a check for the earnest money deposit. Once the offer has been accepted by the seller, the earnest money will be deposited at the title company to be held until closing or until the offer has been terminated. Should you decide to wire in the money to the title company, you may indicate that on your offer instead of writing a check.

A short sale addendum will also accompany the offer and the earnest money deposit. It is a three page document that your Go Las Vegas Real Estate agent can over with you. Basically it lets the buyer and the seller know what their rights are in a short sale and how a short sale varies from a traditional real estate transaction. In addition, you will indicate on the short sale addendum how much time you are willing to give the seller to obtain a short sale approval from the bank. You may check 45, 60, 90 days or another amount of time. If the seller does not obtain an approval within this time period, you may cancel and receive your earnest money back. If there are multiple offers on a home you would like to purchase, this is something the seller will take into consideration to see how committed each buyer is and it can influence which offer they will accept.

How is a Short Sale Different from a Regular Real Estate Transaction for a Buyer?

The two main differences is the time it takes to complete the transaction and fees the buyer has to pay. A normal real estate purchase usually takes about 30 days to complete. A short sale takes more time, anywhere from 45-90 or more days.

The bank usually will not pay for many of the fees that are customary for a seller to pay in a normal transaction. In most cases they will not cover the cost of inspections, an appraisal, a home warranty, or any repairs. If you are buying the home as your primary residence, you typically can get up to 3% of the purchase price from the bank to use towards closing costs. The bank will also cover the Realtor commissions, and other fees such as: title, homeowner association fees and taxes.

How Long Will the Short Sale Approval Take?

This will depend on several factors. One is how many loans are on the property. If there is only one loan, then the process usually is a bit faster. If there are two or more, it generally will take a bit longer. Also, if there is mortgage insurance, it can complicate the negotiations as well. Each short sale is unique and has different circumstances. There is no hard fast rule. Generally, it takes about 45-60 days to get an approval from the bank. It can sometimes take as little as 30 or as much as 90 days or even more. Again, each case is different and no two short sales are exactly alike.

What Happens After We Get the Short Sale Approval?

The seller’s agent will notify your Go Las Vegas Real Estate agent immediately upon receiving the short sale approval letter from the bank. Sometimes the bank will give a verbal approval to the selling agent before the actual letter is sent out. All of the terms of the approval letter must be accepted by both the seller and buyer. Once accepted, your due diligence period begins. Your due diligence period is usually 7-10 days (what is stated in the purchase agreement) to complete your inspections and appraisal. Most banks will give you 30 days from the issue of the approval letter to be fully closed. Sometimes you will have 45 days for an FHA or VA loan.

What if I Don’t Like the Terms of the Short Sale Approval Letter?

If any of the fees or terms of the purchase agreement have been altered from what you submitted into the bank (they often are) and you do not agree with them, you may cancel and receive your earnest money back. Likewise, if the seller does not agree to some of the terms in the short sale approval and wishes to cancel the sale, they may cancel and return to you your earnest money.

Close of Escrow

Once your inspections and appraisal are complete, your lender can send out the documents to the title company for buyer and seller to sign. After the parties have signed all the necessary documents, the final settlement statement has to be approved by the bank before title can finish the closing. Once approved, the funds for your loan may be sent to title and cleared and it can be sent to the county recorders office for final recording. When you have received confirmation that the house has been recorded into your name, you are now the legal owner of the home. Possession of the home usually occurs at the close of escrow, unless otherwise stated in your purchase agreement, you may get the keys from the seller and move in.