Buying a Short Sale? Here Are The Questions You Need To Ask.

The "Short" in short sale is NOT in reference to the time it will take to complete the transaction. Potential short sale buyers... you need to know and accept this. While good real estate agents on both sides of the short sale transaction can and will make a difference, a short sale, by it's nature, will take longer than a traditional sale. When buying a short sale you, and your agent, are to some degree at the mercy of the seller and their real estate agent (Not to mention the lender(s)). Let me explain what I mean by this. If the seller's agent is not doing their job correctly you will have to deal with the consequences. At best the transaction time may be lengthened or the bank's counter-offers may be more extreme. At worst, the sale may collapse altogether. It is a lot of work for the selling agent to address a short sale correctly. Fortunately there are some questions you, the buyer, and your agent can, and should, be asking that will determine if the selling agent "knows their stuff" and is willing to put in the work to make the sale happen:


1) Is there more than one lender involved?

If there is a second mortgage (or perhaps even a 3rd mortgage!) the transaction will be more complicated and likely take longer. Second mortgages have been known to "spoil" a short sale transaction by requiring a short payoff much higher than your offer will allow. Multiple mortgage short sale transactions are not impossible. They will likely require more time and suffering though. Be prepared.

2) Has a short sale packet been submitted to the bank?

Once your offer has been made and accepted by the seller you should know the exact date that a COMPLETE short sale package was submitted to the lender(s) and the exact date that the selling agent has verified receipt of the package(s). A long delay between acceptance of your offer by the seller and submission of the short sale package(s) may indicate that either the seller or the seller's agent are not motivated or not experienced with short sale transactions.

3) Has a lender "negotiator" been assigned to the short sale file?

Short sales are eventually assigned to a lender negotiator. This is an important step in the progress of a short sale. You and your agent should request in advance to be notified by the seller's agent when this has transpired. If it takes longer than 60 days to obtain assignment to a negotiator it could indicate that the sellers agent is not proficient with short sales. You and your agent should determine what the sellers agent is doing at this point to escalate the case. This is a general rule of thumb. Every short sale is different. A long duration until assignment could indicate that either the seller is uncooperative or that their agent is not proficient at moving the process along.

4) Has the BPO been completed?

Generally the lender will have at least one BPO (Broker's Price Opinion) done to ascertain the current market value of the property. When the BPO is ordered is a matter of policy that varies from lender to lender and negotiator to negotiator. It is always a good sign though as it indicates that progress is being made on the short sale within the lenders structure. The seller's agent should be actively pressing for this step until it is completed.

5) Has the price or net proceeds amount been bank approved?

Essentially this is the approval of the short payoff by the lender(s). Often the lender will make a counter-offer rather than accept the transaction as submitted. Your alternative at this point is to accept the counter (meaning "pay more") or stand pat and let the seller's agent negotiate further with the lender. This is over-simplification as the lenders will often apply a "line-item" mentality to a short sale transaction and seek to control the specifics of a short sale settlement (amount they will pay for realtor commissions, title insurance, payoff to jr. liens, etc.).

On a side note, you will also want to know if the bank "previously approved" another offer prior to yours. This may provide you with insight as to where your offer stands in relations to what they are willing to settle for. If your offer is well below the "previously approved" short payoff you may want to reconsider buying the property or raising your offer.

While a short sale provides buyers with an opportunity to purchase a home below market value, buyers must be prepared to endure the negative aspects of a short sale transaction. Make sure the seller is committed to the sale and is cooperative in providing documentation. Discern whether the selling agent has the right combination of experience, skill and effort to make the transaction work. Ask the questions I have mentioned as you move through the process! You will be glad you did.