San Diego home buyers will inevitably come across one or more properties classified as a short sale. So, this is what you should know:
1. The short sale offer: Always verify the short sale listing agent is an experienced short sale agent with a good success rate. Also use the Short Sale Purchase Addendum to make sure your buyer rights are completely protected in a short sale. Most banks want a preapproved buyer that shows proof of funds to close. An all cash offer may not be a strong selling point to the lender in a short sale. The asking price of a short sale may be extremely low in order to generate a prompt offer. In those instances, the eventual selling price may be above the asking price. The final price must be approved by the bank.
2. The short sale deposit: You may be asked to deposit your earnest money deposit in escrow even though you don’t yet have short sale approval. The seller’s agent must know that you are serious enough to make this deposit in order to take the home off the market to other buyers. Should you cancel escrow prior to removal of all contingencies, you are entitled to the return of this deposit.
3. The short sale escrow process: You may be asked to open escrow and perform inspections prior to short sale approval. Each agent has their own process. Repairs are seldom if ever done. A credit for repairs is sometimes possible.
4. The short sale wait: Each lender has a particular reputation for short sale turnaround times. Knowing which lender is involved can sometimes tell you how fast (or slow) the process will be. The short sale approval can take one to two months if there is only one loan, or as much as three to four months if there is more than one loan. There is a lot happening behind the scenes while you are waiting. The realtor is gathering information from the seller and escrow to send to the lender. The lender typically processes the file for two weeks to a month, orders their own Broker Price Opinion (if they haven’t already done so), then requests short sale approval from the investor on the loan. Each investor has different short sale guidelines as to how much loss they can take on each short sale.
5. The odds of success: As mentioned in tip #1, the most important criteria to successfully close a short sale is to make sure the seller’s agent is a short sale expert. On average, a Certified Distressed Property Expert (CDPE) closes 80% of their short sales. An untrained realtor closes 20-40% of their short sales. The listing agent must be proficient in short sale negotiations. Other points to consider; Sellers with one loan as opposed to multiple loans have higher odds of short sale success. If possible, I try and find out the seller’s particular hardship to help determine short sale success odds. If it is a condo sale, be sure to find out if the seller is delinquent or up to date on HOA dues.
6. The short sale approval! When you get approval, you must close on time and typically within the following 30 days. During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. This means that you should have all your loan paperwork into your lender prior to short sale acceptance and ready to proceed full speed ahead once you receive written approval.