• Short Sale Q & A


 Short Sale Q & A From the Buyer's Perspective

Q: I am considering purchasing a home; my Realtor tells me much of the current inventory is Short Salesd or REOs and Foreclosures; what is the difference?

A: Foreclosures are often referred to as REOs, an acronym for the technical term, Real Estate Owned. These properties have been sold or taken back at the foreclosure sale due to the previous owner's default on the loan(s). A short Sale occurs when the homeowner wants to liquidate the property however the debt against the property exceeds the anticipated sales price.

Q: What causes the debt to be greater than the value?

A: There are many contributing factors, the homeowner may have purchased at the height of the market putting little or no money down. Perhaps the loan was an Option ARM (adjustable rate mortgage with an option to pay less than the actual principal and interest due) in these cases any unpaid interest is added on to the principal balance. The result is the balance keeps getting larger. Declining sales prices also play a role in the short sale phenomena as do personal circumstances.

Q: How can the seller sell the property if the debt isn't satisfied?

A: If a seller lacks the funds to make up the deficiency (the difference between what is owed, plus costs of sale and the sales price), the lender(s) in some cases agree to the sale in order to mitigate their loss.

Q: Can they really mitigate loss by agreeing to a short sale?

A: In many instances, yes. Foreclosure is a time consuming and expensive process. each transaction is unique and is handled on a case-by-case- basis.

Q: Why would a homeowner opt too request a Short Sale than letting the property go to foreclosure?

A: Homeowners often try to achieve a short sale in order to circumvent foreclosure. For many, avoiding a foreclosure provides a "more graceful exit" strategy.

Q: Are Short Sales a "good deal"?

A: That depends. There are many factors; the seller's motivation, advance or reserve pricing by the lender, condition, amenities and location of the property all play a role in the value proposition. The fact is property value is subjective; it is often said a property is worth whatever a buyer is willing to pay.

Q: Is the process complicated?

A: Most assuredly!! Lenders are overwhelmed and understaffed. Few if any standard procedures are in place. Frankly, it often takes several months. if you are VERY patient a short sale may be right for you.

Q: What do I need to know before deciding to purchase a short sale?

A: A few  key points to consider; select a Realtor skilled in the art of the short sale. Request a referral to a reputable lender or mortgage broker in order to be pre-approved for the purchase. While some lenders prefer cash offers, you can position your offer for success by establishing the fact that you are well qualified with prearranged financing, Be prepared to provide proof of down payment and credit worthiness at the time your offer is to be submitted. if possible, be flexible with the closing date. Often lenders favor a swift close after the short sale is approved.

Q: Can you give any tips on selecting a qualified real estate professional?

A: You may have a close friend or relative in real estate, but if that person doesn't know anything about short sales, working with him or her may hurt your chances of a successful closing. choose your representative carefully. I will be able to show you short sale listings, help negotiate the purchase when you find the right property, and ensure smooth communications with the seller's representative. Not every short sale request is approved by the lender. Working with a knowledgeable professional familiar with the process and possessing the necessary tools to properly package and present your offer, will increase your chances of success. Be sure your Realtor, hopefully me, uses the standard forms approved by the Arizona Association of Realtors.

Q: After I select a Realtor, arrange my financing, choose a property and execute a purchase agreement, what next?

A: The offer is presented to the homeowner as in any other transaction. The price and terms are to be fully negotiated by buyer and seller before being submitted to the short sale lender.

Q: Once I come to an agreement with the seller is it pretty much a done deal?

A: Even after you come to agreement with seller, the seller's lender or lenders, if there is more than one mortgage, must approve the sale before you can close. In some cases the lender will ofger a conditional approval, meaning either buyer or seller would have to modify and offer and terms in order to offset loss. While neither buyer nor seller is obligated to agree to modifications, the lender's approval may be linked to an agreement to acquiesce to their demands.

Q: Can the seller entertain and/or accept other offers after mine has been accepted?

A: An AAR Short Sale Addendum is incorporated into the Purchase Agreement in Short Sale transactions. The Addendum states that the seller may accept subsequent offers and submit back-up contracts to the seller's lender(s) for consideration. It further states that the seller's lender may elect to allow the seller to sell the property to the buyer with a contract that has the most acceptable terms and conditions to the lender. This may or may  not be the first contract received by the lender. Review all contractual agreements and forms with your Realtor before signing.

Q: How long does it take from start to finish?

A: Some say when there is only one mortgage; the approval can take two months or more. That may be overly optimistic. If there is more than on e mortgage with different lenders, it can take four months or longer for the lenders to approve the sale. Remember patience is a virtue in short sale!

Q: What if I have a home to sell or want other concessions?

A: If you have a home to sell before you can close on the purchase of the Short Sale, or if you need to be in your new home by a certain time, a Short Sale may not be for you. Lenders tend to prefer offers with few contingencies and flexible terms. Inspection contingency time periods should be shorter rather than longer. Remember, making financial demands on the seller such as pest control repairs, or credits for property shortcomings all translate to additional costs to the lender who is absorbing the loss.

 Q: How can I find out more about a particular property before I decide to prepare an offer to purchase?

A: I will review a property profile (tax assessor's records) before writing the offer to purchase. By doing so I gain a clearer understanding of the number and amount of all loans currently attac hed to the property. Keep in mind, I will not be able to determine other debt owed by the seller that is unattached to the property. 

Q: Once the lender approves the short sale is the seller obligated to the sale?

A: That depends on whether or not the lender granted unconditional approval. if a lender approves the short sale but imposes conditions regarding cash contributions or continuing liability for the note, the seller may refuse to proceed with the short sale.

 Q: Will I be able to negotiate credits and/or repairs on a short sale?

A: While every transaction is unique, and you can certainly try, it isn't too likely. lenders are absorbing significant  losses as well as clearing other debt and costs of sale. They may not be inclined to agree to requests for repairs or credits.

Q: Any other tips for a Buyer in a Short Sale?

A: Talk to your lender regarding interest rate locks. Interest rates are fluid and may fluctuate while you are waiting for approval, While we are seeing some stability in more regions there is always the possibility that property values could still decline. Due to the extended time period required for the majority of short sale approvals this is a factor to consider.

While there are risks associated with a Short Sale, if you have the time, patience, and perseverance to see it through, it can be a win-win for you and the sellers.

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Coldwell Banker Residential Brokerage
1045 West Queen Creek Rd. #1 • Chandler, AZ 85248
Debbie Cannon 480-540-2054 •