So you’re in the market to buy. Interest rates are low, and prices are more-affordable than ever. Though statistics show that distressed listings (short sales and REOs) are only 30% of the overall market, trying to find a home to buy makes it feel like over half of the available listings are! So, how do you buy one of these short sales? What are ‘tricks of the trade’, and what will give you the best chance at getting one?
The first important point to understand in buying a short sale is that for the most part, sellers and their respective listing Agents are not focused on selling price (as long as the offer price is justifiable to the bank!). What is more important is working with a buyer who is patient, flexible (in contract terms and even price), and who has hired a buying agent who is cooperative, responsive, and who knows short sales.
The second most-important part of buying a short sale is to react in a timely manner. As a listing agent myself, I’ve learned to value quick responders as it is typically indicative of how they’ll be moving forward in the transaction. Short sales have unique hurdles such as updated proof of funds, affidavits/addenda the banks require, and sometimes unrealistic response requirements set by the bank. The quicker the response, the better chance I have at closing the short sale.
Another important point with short sales is to not validate listing/asking price as much as one would in a traditional equity sale. Many times I have to list a short sale high simply because the bank has required me to. My frequent price drops from there is a strategy to prove the true market value to the bank. On the other hand, I may list a short sale for an aggressively low price if the seller has a foreclosure date of only a few weeks away, and I must procure an offer ASAP in order to delay it.
The fourth point worth discussing in regards to buying a short sale relates to the closing costs. Though every buyer would like the banks to permit/pay for a home warranty and other miscellaneous fees, most of the times they do not. Offer accordingly. If your offer is contingent upon the bank approving those fees, you are probably offering too much.
Last (and most important?) point in buying a short sale is to work with an experienced Buying Agent. It is no secret that many Agents are scared of short sales, though few will actually say it (considering us Agents are compensated only when a transaction closes, many agents will say whatever they must in order to get the business). It is critical to work with an Agent who knows the ins-and-outs of short sales including how a bank values the home, the responsiveness required by the bank, the specific lender traits and idiosyncrasies, the value of successful communication, and more. When an Agent who understands the value in all of those points presents an offer, they will be greatly valued – sometimes even more than an offer for a higher amount.