Understanding the Short Sale Process (for your buyer)

A short sale is not a foreclosure.  And the process for a short sale is different than a foreclosure. 

Short sales are still owned by the seller and NOT the bank.  However, most short sales are at least 90 days behind in house payments.  So the seller hopes the bank will agree to let them sell it at a loss with no money owed at closing (or in the future).

The bank is NOT obligated to work with a buyer and seller to see that the house is sold.  Most sellers do not have enough equity so the bank is usually taking a loss.  Making their motivation even less. 

The bank could foreclose at any moment.  There are no grantees. 

Here are some tips to help you and your buyer:

1. Have a talk with the buyer explain the process of short sales.  Make sure they are prepared for what may come. 
2. Attempt to discover value.  Prepare a Comparative Market Analysis.  Attempt to discover how much the seller’s owes.  Look at the tax value.  Look at how fast homes in the neighborhood are selling in the neighborhood.
3. Help your buyer come up with a reasonable offer to present to the bank based on your evaluation of the value.  If the bank could easily expect to get more than the offer your buyers want to present the bank may never respond. 
4. Give a time frame in the contract of how long the buyers are willing to wait for the seller to get a response from the bank.  A good estimate is 7 to 14 days.  Most short sales take longer than the average 30 days to close.
5. Find out if your state has a “short sale addendum” that needs to be included with the contract.
6. Submit your offer to the seller’s agent.  Help the agent understand your buyer’s offer so they can explain it to the bank.
7. Don’t be surprised if the bank asks you to reduce your commission.  Know up front what your broker will allow you to do.
8. Call the seller’s agent every few days to help your buyers stay in the loop.  
9. Negotiate the contract as needed. 
10. Make sure the bank has signed off on the offer.
11. Inspect.  Short sales are generally sold AS IS.  The bank will usually not allow for repairs.  If the buyer’s lender requires the repairs the bank may make an exception. (If the buyer’s lender requires the repairs, bid estimates will need to be presented to the bank to negotiate for those repairs.  If the bank will not negotiate for those repairs then you may want to make sure the buyer has a way to get out of the contract).
12. Continue to keep in touch with the seller’s agent (buyer and the title company or closer).  Stay in the loop until closing.