Buyer’s Agent Representation For Short Sales
In every real estate transaction I am a firm believer of a buyer having representation. It makes perfect sense for a home buyer to have someone in their corner giving them guidance. Unfortunately when it comes to short sales I have found that so many buyer’s agents are not properly educated enough to do a proper job.
Short sales are not ordinary real estate transactions and as such an agent who has no knowledge should no even consider getting involved with one unless they have another agent who does mentoring them. While representing home owners who have needed to short sale their property over the last seven years I have noticed time and again real estate agents who don’t even understand the basics of short sales. If you are a buyer and are considering purchasing a short sale I am going to go over some of the basics below on what you need to understand before entering into one of these transactions.
Short Sales Take Time
If you are considering buying a short sale the first thing you need to understand is that they take far longer to purchase than a non-short sale. On average it takes around 90-120 days to get short sale approval. In some cases it can be a lot longer! For example if there is more than one loan on the property and both are “short” then you will need to get approval from both lenders. This will add time to the overall process of getting to the closing table.
It is also possible that the original mortgage the owner had on their home was an FHA loan. If that is the case than you can prepare yourself for an even longer journey. As crazy as it sounds, it is quite possible it could take 6-9 months or longer to get to the closing table with an FHA loan. This is obviously a question your buyer agent should be asking right up front. Guess how many buyer’s agents have asked me this question over the last seven years? If you said zero you would be correct!
On some short sales Fannie Mae or Freddie Mac is the investor holding the note. There are many buyer’s and agents who will ask the question who is the lender? Lets assume for a minute the lender is Bank of America (BOA). That does not mean that Bank of America is necessarily the decision maker. They may not actually own the note and are just the “servicer” for the investor.
There could be 20-30 investors that own notes that BOA services. This is one reason why one BOA short sale could be a nightmare and the next smooth sailing. This is true of most lenders not just BOA. On some loans there could also be mortgage insurance in which case the insurer also has to approve the short sale. Are you starting to get the picture here? Short sales are one big bureaucratic mess. If you were thinking that short sale approval was as simple as some dude was sitting behind a desk making decisions then you are wrong!
The long and short of all this is that a buyer’s agent should not get a buyer involved with a short sale transaction unless they have the time to see it through until the end. Keep in mind that a seller going through a short sale is in a tough financial position. The last thing they can afford is an uneducated buyer thinking it is fine to bail on them after a month because they are tired of waiting for a short sale approval to be issued.
Be Prepared To Spend Money
In every real estate transaction there is risk. When you purchase a home some of the typical expenses a buyer should be prepared for are home inspections, hiring a lawyer for contract review, and applying for a mortgage. In many short sales I see buyer’s agent’s trying to structure the contract such that the buyer does not have to spend money on any of these things until there is short sale approval.
Sure it would be nice to go around in life to never have any risk in anything you do but that is not how it works when purchasing a short sale. Well actually let me rephrase that. This is not how it works in any short sale where I will be representing the seller! The goal in any short sale is to actually get to a closing. When you try to change the rules of real estate you increase the likelihood you will not be closing. There are reasons why a buyer should get their home inspection done, why they sign a binding contract and why they procure their financing prior to short sale approval. For a complete explanation of why a buyer should complete these tasks up front see reasons to reject short sale offers. Being educated on the entire short sale process is vital.
Interview The Listing Agent
Why on earth would you want to interview the listing agent you may be thinking? The answer is real simple….you want to be able to find out what the chances are that you will actually close on the home you are interested in purchasing. Closing short sale transactions are far more complex that a regular sale. The listing agent in a short sale should have experience closing them! This can not be emphasized enough. There is nothing more important in a short sale than the listing agent having a track record of success.
For example if the listing agent allows you to do a home inspection after short sale approval do you really think they have any clue what they are doing? Would they be representing their clients interest to allow this? Do you think there would be plenty of short sales that bit the dust right before closing if this was allowed?
Here is a detailed list of short sale questions for a listing agent. These questions should be able to help you get a better grip on whether or not the Realtor knows what they are doing. You should at the very minimum be finding out how many short sales they have listed and how many of those have closed. You should also be making sure that if your offer gets accepted the seller signs it and the home is taken off the market. Remember without a signed contract, the seller can accept a better offer from someone else.
Short Sale Low Ball Offers
If you think short sales are an open invitation for you to offer some ridiculous price then you are wrong. The chances of a lender accepting something significantly under value is slim to none. What buyer’s agent and buyer’s need to understand is that the lender is going to verify that the offer the seller has accepted makes fiscal sense. The lender will either send out an appraiser or another real estate agent who will do an analysis of value on the home and send that back to the lender. The lender will use this information to form the basis of their decision on whether to accept, reject or counter offer.
It makes no sense for an owner to accept a low ball short sale offer. When a seller does this they have taken their home off the market for months and are almost assured that they lender will say NO! For a seller to accept a low ball offer would essentially be gambling away any chance they have for short sale success.
A short sale should be a decent value and more often than not slightly under market for what a similar property should sell for. Don’t expect the world though. Lenders are much tougher today with value and getting the most they can.
Short Sales Are “As Is”
Short sales are generally as is transactions. Don’t expect a seller to go out and make repairs after doing a home inspection. The whole reason they are doing a short sale to begin with is because they don’t have the financial means to keep the home. If you happen to do a home inspection and there is a major defect that you were not expecting what you should try to do is negotiate a lower sale price.
The listing agent will want to document the defect to the lender. They will do this by providing the inspection report to the appraiser or real estate agent who does the evaluation on their behalf. Do not expect to negotiate a bunch of silly “punch list” type of items from a home inspection. Go into the sale with an open mind knowing you will need to do some work.
About the author: The above Real Estate information on educating a buyer looking to purchase a short sale was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 26+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.
While using an experienced agent is always advantageous for buyers, during a short sale it is critical to utilize an agent who is very familiar with the process and has specific experinece with short sales. For those buyers who have the patience to see the process to completion, there is the possibility for a great deal on a fantastic home.
Anita – you are right on the money about short sales! You need to have the patience as a buyer to see the transaction through until the end but also make sure the Realtors involved know what they are doing. There are so many short sales that never reach the closing table because they agents were not well versed on short sale procedures.
So I’m involved currently with purchasing a short sale we were told this… it was missed when we started the process. But were told shortly after. We started all of this prior to Christmas 2014. We were told all along that everything was fine our seller was doing all the paper work and everything would be all set for March 2nd closing… until Feb 11th. Then were were notified that the seller has a FHA Loan and needs 60 days or more. So its been just over the 30 day point asked for an update, was told there is no update that the seller was requested to do more paperwork and that is all. How bad does this sound? This is really the house for our Large Family and everything I want, but now starting to keep me up at night. Family is coming up in Late June we were hopeful to be in the house.
Melinda – FHA short sales are really difficult from the standpoint of time. I have seen them take over a year to complete. Not saying that will definitely happen but it is like getting two approvals when FHA is involved.