Buying a Short Sale in 2012 – A Revisit to 2007

I wrote Buying a Short Sale in late January 2007 to share my thoughts with consumers and encourage participation in an on-line dialog. I was 5 months into blogging.

Little did I know how many comments (well more than 400) this would inspire, and the extent to which consumers would share their stories, good and bad, and ask for advice on short sales. I’ve never had a post with this amount of buyer and seller participation, which is pretty cool.

This post has, for 5 years, continued to attract readers, with over 84,000 clicks to date.

“Buying a Short Sale” has also been popular with some AR and non-AR agents, too, a number of whom decided it was worth copying and using as their own. But that’s another topic.

I’ve thought, for some time, about updating this Buying a Short Sale post, given how the short sale landscape has changed…or has it??

And the challenge from AR to take a popular older post and rework it made this too good an incentive to pass up.

You can read the original “Buying a Short Sale” here…but I dare say the comments are much more compelling and interesting. You decide – I’d be curious what you think.

Short Sales

As a buyer watching the real estate market, you are undoubtedly aware there are many "short sale" properties on the market, in just about all areas and in all price ranges. Buyers often believe that these are the best deals, along with foreclosures [that hasn’t changed much, although I find more people know what these are about and many are kinda squirrelly about the potential wait].

Note – this is California. Things may differ in your state!

While you shouldn’t be scared off by short sale properties - they may turn out to be a great deal for you - there are a few things to be aware of you decide IF you want to pursue a short sale purchase:

• A short sale MUST be approved by the lender (but there is NO guarantee)
• The lender is looking for market value, too, and you cannot expect a short sale to be a fire sale (i.e., it may NOT be a great deal after all especially if there is a ton of work to be done)
• If there is one than one lender on the property things become more complicate, and potentially time consuming
• Lender will likely have a checklist of requirements and paperwork required for the short sale process
• Lender will likely demand the sale be "as is"
• Short sales take time (don’t be fooled by that name!) – it’s hard to know what time frame to expect. A few lenders these days can approve a short sale in a few weeks, or even less. Others have taken more than 6 months, or never approve them and the property is foreclosed.

If you are making an offer:

• Make sure you make the offer contingent on the short sale being approved by the lender in writing and set a time frame for approval
• A form (there is a new statutory Short Sale Addendum in California) is required to outline the short sale contingency terms and conditions
• Your buyer agent should interview or “qualify” the listing agent to gain a perspective that they know what they are doing, or not. If they don’t this might be a transaction you might want to avoid.
• In 2007 I said “There is a good chance there will be more than 1 offer.”  Hah, I have yet to come across a listing where there was ONLY 1 offer, except 5 minutes after it came on the market, or when it’s a high-end property. It’s not unusual for there to be 5+ offers and I've heard of more than 15
  
• It’s essential to conduct a home inspection even though the lender will probably require an "as is" sale - you still want to know what you are buying and what repairs need to be made so you can decide if you want to take them on

Be sure to discuss issues and questions with your agent before proceeding, preferably someone who has some experience with short sales.

You do NOT want to take on a short sale purchase without buyer representation by a qualified, knowledgeable licensed agent. There is too much at risk. I’ve never even heard of dual agency in a short sale.

The good news is that there is a ton of information here on AR, for agents and consumers alike, from loads of people who are highly experienced in short sales – Broker Bryant and Katerina and Nestor Gasset in Florida, Melissa Zavalla and Elizabeth Weintraub in California, the list goes on and on.

There’s even a Short Sales Superstars Group.

It really shouldn't be this hard to buy a cheap condo in this market.

Granted there are lots of short sales and REOs, especially when you are looking under $100K in North San Diego County (yes, you CAN buy a condo in this price range in America's Finest City these days). Can you believe even a 2-bedroom one? 

Well, you can, but it ain't easy.

Here are the most recent examples just today. 

Scenario 1- vacant condo on lockbox per the MLS. Got to the unit. No lockbox but keys lying in the entry. Nope, they did not work. Per the agent later - "Oh, yeah, I had to take the lockbox to SANDICOR because of a problem. I guess I'd better change the MLS". They have a full price cash offer and 2 back-ups. Guess she doesn't need to worry. Short sale

Scenario 2 (less than 10 minutes later) - got by the rather nasty looking dog on the first floor. Opened the lock box, then the door. Fortunately, as I have learned, I said Hello loudly since this unit was NOT vacant, even though it says so specifically in the MLS. A sleepy-eye woman appeared, looking a bit bewildered. Turns out she is the tenant and has not been told by her landlord, who is continuing to collect rent, that the unit is for sale and is a short sale. She very nicely let us in. Called the agent but no call back yet. He'll "respond to emails within 24 hours." Short sale

Scenario 3 (a short time later) - got to the first floor unit, which is "mostly vacant" since the seller is not living there but is still moving out per the MLS. And the unit is mostly not accessible, for no lockbox was to be found. Interior looked nice from what we could see. Per the agent later on "Yeah, I have a weird situation there. So I took the lock box off." I politely suggested she change the showing instructions. Short sale.

These are not unusual situations in the short sale real estate market, and no doubt many readers have encountered similar, or worse. It still rankles. And with the limited inventory at the lower price points in many areas, and lots of competition, buyers are understandably frustrated. I hate to think that you have to call and verify EVERYTHING in the MLS ebfore even taking an interested and qualified buyer to see the property.

Coupled with the difficulties involved in getting short sale approvals, banks making decisions on REOs, and obtaining loans, it's not easy buying a condo these days. Even a cheap one. 

Did I mention FHA issues?

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If I can provide more information about Carlsbad real estate and surrounding areas, or the housing market in general, or otherwise assist you in your homes search, please contact me by phone or text at (760) 840-1360 or email me at JDowler@remax.net.

All content copyright © 2010 Jeff Dowler "The California Relocation Dude" Carlsbad Homes and Real Estate Tidbits

This post is for buyers who are buying a short sale or REO. There are lots of you, at least in Carlsbad and nearby communities of Oceanside, Vista and San Marcos, and from what I hear, elsewhere too. 

A much earlier article on buying a short sale talked more about the process, and issues to be aware of.

Take a look, then come on back. I'll wait...

Now let's get back to the business of buying a short sale or an REO and what you may be missing. 

In many real estate transactions it is common for buyers to find that certain things will not remain in the property, such as the washer and dryer, or the refrigerator. This varies from deal to deal, and may be disclosed up front in the MLS listing or become part of the negotiations. These items may be minor issues, or can become major conflicts depending on the parties involved and their feelings about the exclusion. 

Buying a short sale or REO may dredge up more issues of things that do not remain with the house. In fact, they often are simply missing. And they are important to watch for, since the seller likely won't return them, and in the case of an REO, the bank is not likely to supply them. In some cases the amount of stuff missing is pretty surprising. 

Appliances are often not there, including dishwashers and stoves (unlike in traditional sales where these are usually fixed in place and therefore stay with the property).  That can mean thousands of dollars to replace a washer, dryer, stove/oven, microwave, refrigerator and dishwasher. And clearly you can't live there without some of this stuff. 

Other items I have seen missing - toilets, sinks and faucets, tub, shower stalls, doors, sliders, windows, screens, carpet, tile, AC units, door knobs, light fixtures, disposals, plumbing (pipes), electrical items (outlets, switchboxes, receptacle covers), walls or portions thereof, entire kitchens and baths, water heaters...the list can be a bit extensive. 

The reason to be aware of these missing items is obvious - as the buyer you will need to replace them, and this costs money. Perhaps more than you are bargaining for, or have the budget to deal with on top of your mortgage.

Now that's not necessarily all bad, since you end up with new appliances with warranties, and other new stuff which looks better than perhaps the originals, and adds value. But it's another aspect of buying a short sale or REO that can be overlooked and not factored into the decision process. 

A good question any prudent buyer should ask when buying a short sale or REO...."What am I missing?"

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If I can provide more information about Oceanside real estate and surrounding areas, or the housing market in general, or otherwise assist you in your homes search, please contact me by phone or text at (760) 840-1360 or email me at JDowler@remax.net.

All content copyright © 2009 Jeff Dowler Carlsbad Homes and Real Estate Tidbits

As a buyer watching the real estate market, you are undoubtedly aware that there are more "short sale" properties on the market, at least in many areas. A short sale is a home where the market value of the property is LESS than the loan amount owed to one or more lenders. And buyers often believe that these are the best deals, along with foreclosures.

Note that there may be state or regional differences in the requirements and paperwork - ask your agent.

Don't be scared off by these short sale properties as they may turn out to be a great deal for you.

But you need to know a few things before you decide IF you want to pursue a short sale purchase:

• A seller must disclose if the home either IS a short sale or likely will be due to the market value.
• A short sale MUST be approved by the lender. Even though a seller might accept your offer, it will be subject to approval by the lender
• Lender will (likely) send out an appraiser to evaluate the property in light of recent sales - they are looking for market value, too, and you cannot expect a short sale to be a fire sale (i.e., it may NOT be a great deal after all)
• Lender must receive hardship letter and other required documents from the seller in order to approve a short sale
• Lender will likely have a checklist of requirements and paperwork required for the short sale process
• Lender will likely request that the sale be "as is" and due to hardship will probably not approve any credit for repairs
• Be prepared for a short sale to take more time (total time may be 60 days +/-) - this is one of the biggest complaints from buyers

If you are making an offer:

• Make sure you make the offer contingent on the short sale being approved by the lender and set a time frame for approval
• An addendum form (statutory in California) is advised to outline the short sale contingency terms and conditions (this is a optional state form here, but there may be other requirements elsewhere in California and in other states)
• A letter to the seller is also advised requesting written confirmation that the lender has received the hardship letter and other documents as part of the short sale application
• There is a good chance there will be more than 1 offer
• It is still prudent (I would say it is ESSENTIAL) to conduct a home inspection even though the lender will probably require an "as is" sale - you still want to know what you are buying and what repairs need to be made
• It is possible the seller will not be able to do any Section 1 repairs resulting from the Wood Destroying Pest Inspection (e.g., termites) due to hardship of funds. This may vary from state to state AND lender to lender

Be sure to discuss issues and questions with your agent before proceeding, preferably someone who has some experience with short sales.

I would NOT recommend taking on a short sale purchase without representation by a qualified, knowledgeable licensed agent. There is too much at risk for you, the buyer. And remember, the listing agent represents the seller's interests, not those of the buyer.

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UPDATE - November 21, 2007

Here is a link to some other articles I have written that answer other common questions asked by buyers about short sales. While the articles reference Carlsbad homes, the general issues are probably applicable in most areas depending on current practices and any particular laws.

UPDATE - APRIL 2008 

As you will see in the comments, short sales continue to be very common, complex, and frustrating. And very time consuming, sometimes taking months before a response from the bank occurs. 

I recently was in a short sale situation where after 5 weeks the bank had not assigned a negotiator yet, even though all the paperwork (including buyer offers) was submitted and in their computer. The issue, per the bank, is being overwhelmed with the volume of short sale properties. 

It seems that REO (bank owned properties) are easier, at least in this area, to deal with since the bank owns the property. Neogiations on offers seems to be much faster, although it is hard to know how it will happen, i.e., will the bank look at all offers, the highest, in order of receipt, etc. And negotiations may only be verbal (even though we have a form for counter offers here in CA).

I have heard from more than one agent that getting a home to closing can take 3 to 6 months from start to finish. That mean a heckuva lot of patience on the part of buyers and agents.