In the past year alone, 20% of my clients' real estate transactions have involved distress sales, and I expect that percent to be higher in 2010. Given the volume of distress home sales in the marketplace, I thought it might be beneficial to share a summary I had written up for a client on the short sale process (see below).
This is meant as a quick summary (not legal advice), and I'd be glad to answer questions and share my experience with you as we work to realize your real estate goals together.
Respectfully, John 302-740-5872
What is a short sale and how do they work?
A short sale occurs when a homeowner wants to sell their home, and the amount they owe on their mortgage is greater than the current market value of the home.
In order to sell the home, the seller would have to get an approval from their current lender(s) stating that the lender(s) will absorb any commissions and costs associated with the sale, and agree to accept the contract price offered by a willing buyer. The seller, in most cases, is now released from any indebtedness from the previous lender(s). This entire process, from the time of the initial offer by a buyer to final settlement can take anywhere from 60 - 180 days - with the average being somewhere around 120 days.
Here is a high level summary of the steps in the process:
- An agent submits an offer on behalf of the buyer to the seller's agent. If the seller has no other offers, the seller “might” accept the offer, depending on how low it is (no guarantee).
- Once the seller accepts the offer, the agent sends it to the seller's lender/bank. In about 2-3 weeks (sometimes longer), it should get assigned to someone called a “negotiator”.
- The negotiator person is now in charge of handling the process of the short sale for the lender/bank. The negotiator then orders something called a BPO (Broker Price Opinion) which is a fancy term for an appraisal. The appraiser goes out to look at the house to determine its worth and sends a report to the negotiator.
- Based on the appraisal, if the negotiator thinks the buyer’s offer is close enough to the appraised value, he gets in touch with someone called “the investor”.
- The investor is now the person who makes the decision on whether or not to accept the offer. My experience is that when the offer is within 90-95% of the appraised value, the investor will accept the offer – again no guarantees.
- Once the offer is accepted by the lender/bank, it can now move forward with having the buyer’s lender do their own appraisal. This costs about $250-$300 – which is less than the home inspection.
- If the appraisal (for the buyer’s lender) comes back fine then the process moves on to the home inspection (about $750-800 including septic, radon and termite). Most of the time the house is being sold in its present "As-Is" condition so keep in mind if something needs to be repaired, like a septic system, the lender/bank usually will not agree to cover that repair. They may agree to reduce the price or they may not. If the buyer is not willing to cover the repair either, then the buyer can walk away from the deal and get the deposit back.
- If the inspection is fine, then the process moves on to settlement.
Link to ‘The Mortgage Debt Relief Act of 2007’