Today Buyers and Sellers of Central Oregon homes are hearing these terms more and more which bring more questions than answers most of the time. There are many misunderstandings of what these terms mean and what the process is or can be. The current real estate market is one that even veterans of 40 plus years have never seen before. Let’s explore what these mean here locally and have a glimpse of what they may mean in other areas.
The Short Sale – A seller is attempting to sell their home for less than they owe the bank. That is the simple answer to what a short sale is. As we tread on you will see that the answer is not all that simple. How can the seller do this is one of the most common questions followed by how can I buy this home for less. The seller of a short sale is usually behind at least one payment and can not keep up with the current mortgage. The banks do not want to have to take the home (Foreclosure). Some of the reasons are, banks are not in business to be home owners and the average cost to the bank for a foreclosure is in excess of $30,000 according to some experts.
Ashley Drake Gephart, Associate Broker, REALTOR® a good friend in Albuquerque explains in more detail what a short sale is
A short sale of a residential property is still owned by the owner, but the owner is usually behind in their payments and the price listed is short of what is needed to pay off the mortgage and closing costs. There is no guarantee that the bank will accept a short sale even if the owner offers the full list price, and the response time from a bank on an offer can take up to six months.
A Short Sale is always subject to the lender approval this process is far more complicated that it sounds. Some homes currently listed as a short sale have a first and a second mortgage. In these cases approval by both lenders is necessary. Most short sales will be sold as is, with few if any warranties. Everything about the contract depends on the bank agreeing to it. A short sale can take weeks to months to get bank approval.
Joshua Jarvis REALTOR® in Georgia also explains short sales;
Pre-Foreclosures are also called Short Sales in some cases. Most of these will be listed as well. Short sales can be a great deal and opportunity but do require patience and a easy living arrangement in case the deal falls through. Not all pre-foreclosures are short sales, but most will be.
The process is not as simple as it sounds. There are specific documents the seller will need to provide sometimes multiple times, the listing agent will need to have extensive communication with multiple parties to keep the ball rolling and be familiar with the process and the specific situation.
As a buyer you can have the best agent out there and if the listing agent is un-aware of the process your offer can be a total waste of time. Sellers if you are working with an agent and trying to short sale your home, make sure your agent knows the process. More than one buyer can tell you that they had an offer with a short sale only to find that it went to foreclosure anyway. Reasons for this can vary from the bank would not accept the offer to the listing agent did not ask for the sale date to be delayed while the offer was negotiated.
Some banks will not discuss a short sale or price until you have an offer, others will work with you on price and terms right from the start. More often than not you will need an offer before the bank will talk about price and so on. Part of the process of a short sale is that once that offer comes in – the bank will ask other brokers for their opinion of the value of the property, this is referred to as a BPO.
The Bank Owned Home, also called an REO or REPO – These are homes that have already been taken back by the bank. These homes can be pristine or they can be real fixer up type properties. Once the bank owns the home you are dealing with one person generally. Although responses can be a little delayed because the decision maker is generally has a ton of files on their desk. Acceptance of these properties generally only takes a couple days and things move a long much like a standard real estate transaction, if you agent knows what to expect that is. There are a few quirky items that your agent needs to know to protect you.
Thesa: Excellent post on short sales!!!!
thank you so much
Thesa- Good article. I think a lot also depends on the Bank. Many people there are so overwhelmed they don’t know what they’re doing either. Always ask for someone higher up if you’re not getting satisfaction quick enough….that’s my 2 cents 🙂
Thank you Kathy – it is amazing how many people do not understand the time frames, or issues with a short sale – they – even the agents can be confused.
Sounds like the bank owned is a lot easier for the buyer, however, with a greal Realtor like yourself, even a short sale can make sense. I would not even attempt a short sale, buy or sell, without someone that really knows what they are doing on my side. Keep up the good work.
Thesa – in these tough economic times we are going to be seeing more homes in foreclosure. Knowing the different terms will help buyers understand what is going on in their market. There is a big difference in the process if a home is a short sale vs bank owned. Good post!
Ashley – we currently are seeing less bank owned homes – but like you I believe these properties will continue to come on the market – I need to write a post that explains in more depth that the buyer that buys a bank owned property does not have to work with the bank’s agent – this is a huge misconception of many buyers. Because we say that a short sale or bank owned property we are working with the banks – buyers think they have to use those agents too. Thanks for stopping by – it is always nice to have another spin on things.
Thesa- I put an offer on a short sale home and the listing agent is telling my realtor that since it was a second offer that it will not be presented to the lender unless the first one is declined. From all of the information that I have read it states that all offers have to be presented to the lender at once so they can make a desicion on the best offer. I feel like the listing agent is putting us in a bad position and I think that it might make us lose the deal in the long run.
Kristina – I have ran into one listing agent in my dealings with short sales that does this – however – the one I dealt with did have a 72 hour clause to the folks in first to put in the offer – trying to get a bidding war. Short sales are a frustrating process…. I personally agree with you – all offers should be submitted – and let the bank put out a highest and best request – meaning to notify each party there are multiple offers and they want one offer from each of you with your highest and best offer.
One way an agent gets an offer or multiple offers on a home is to price the home very low – so low the bank will not consider it… then the bank will either counter or not respond at all. I wonder when I hear stories like this who is being represented – because it certainly is not the seller – if the listing agent is not going to get the highest offer for the seller and bank – the seller stands to loose – this is my personal opinion. Long story short – I agree with you. Talk to your agent
I have a situation with a short sale that seems strange. The lender stated that they would accept $105k NET for the property. My seller is past due on their Home Owner Association dues by $3,500. However, after commission, past due HOA’s, closing costs, etc., I actually got the lender a NET of $107,000. I submitted the final documents, including the HUD for review. The lender came back and said that they would not accept the deal due to the fact that the investor was not going to pay the Home Owner Association anything more than 10 percent of what was past due. They are NOT reconsidering. It seems strange that I got them $2k more than the BPO, but they are willing to let this foreclose months from now over a stipulation that they created and control. Thoughts?
This is why in a short sale everything is contingent on the lender’s approval. It seems foolish to loose the transaction and not move forward but to the bank this is just black and white and the HOA was not part of their original deal – is there a chance that the HOA will become a lien on the property? I had one such transaction that the HOA did lien the property – which at that time the lender had to accept the past due to clear the title –
It sounds like you represent the seller on this transaction – is there a way to get the buyer, buyer’s agent, you and the seller to pony up and come together to get these funds together? I understand you got them more then they were expecting – but sometimes that means nothing – it is amazing what lenders look at to put together a short sale….. some that I think will never go – are easy and some I think are going to be easy never come together. I would look for the win win – the object in this transaction is to get the deal done….
Great article. I have a question about the short sale process. What if a sellers agent asks for the buyers personal info, even before accepting the buyers offer before the buyer opens escrow? Is this common? I have an offer on a short sale and am told I need to give this info, but don’t feel comfortable doing it.
What a great article! Your explainations are very clear. Buyers are so confused anymore. Short Sales and Bank owned properties both have their issues. Buyers should take all factors into consideration. But don’t forget the average typical seller – they are motivated too! And a private seller not in trouble could have more equity in the property and therefore more room to adjust pricing or conditions.
Thesa – if we all agree (and I think we do) that short sales and REO are going to continue being dumped into the market, do you see any hope for the big servicers speeding up their approval process? It seems like some take so long that the value drops below the offered price in the interim. I read story after story of lenders expanding their modification dept’s, but nothing about the dept’s that deal with short sales and REO.
I have had a couple of my people get a modification – trouble is it is usually not enough
Why bother with short sales? Wait for it to become REO. REO’s are pretty simple, clear titles, straightforward, faster, and CHEAPER! Hello?
Obbieman;
first of all please know that your comment is truly appreciated. There certainly are homes in Central Oregon that this is the case, however there are other homes that this is not the case. This is why having an experienced Short Sale agent is so important, many factors should be considered. Does the short sale have any chance of closing? Will the seller be willing to take responsibility for a note back to the bank if they have a line of credit against the home? A short sale has a lot of “moving parts” and unless they are in place correctly it can be a road path to failure. However, sometimes the short sale is a good deal, and for an investor, it is the prime opportunity. Many of the bank owned properties have a clause that they have to be on the market 15 days prior to an investor purchasing, this gives owner occupants the first chance at the best of the pick. Hope to see you again – thanks again for commenting and thanks for visiting.