If you are in the market to purchase a home you know that large parts of the current inventory are short sales. A property is considered a short sale when the seller owes more on the home that its current value. The big question most buyers ask is, “Why do short sales take so long?”
Real estate professionals know that a short sale transaction can take months to process from the time of the offer to closing. The reality is those short sales usually take three to four times as much as a regular sale. Anywhere from 30 days to six months (or longer), depending on how fast the borrower (seller) provides critical information for the lender and investor approval. Another variable to the short sale transaction is the willingness of the buyer to wait for an extended period of time. The key factor in any short sale transaction is setting the buyer’s expectations.
In a short sale transaction lender “reverse underwrite” the loan. In other words instead of determining affordability, the bank considers “un-affordability.” They also consider if the sale price is close to market value. The lender will review the seller’s financials to verify they can no longer afford the house. They will then order a BPO (broker price opinion) or an appraisal to make sure the home is being sold close to the market value.
Once this value is received the bank will make a decision to either accept the agreed upon price, make a counter offer, or reject the offer entirely. All this happens while the buyer is still waiting.
Sellers also need to go through an education on the short sale process. While the lender takes its time in responding to the offer, once they do respond they often require a response in a 72-hour timeframe. If the response is not provided in the allotted time, the file is closed and all the hours of work are lost. Another common occurrence during a short sale is the seller being served with foreclosure documents. It is crucial for seller to know that while a short sale can delay foreclosure proceedings it does not cancel it.
As you can see short sale transactions are very involved on both the part of the seller as well as the buyer. Utilizing Realtors knowledgeable in the short sale process will assist in making the transaction go more smoothly.
Melanie Pennino is the president of the Lodi Association of Realtors. You can reach her at firstname.lastname@example.org