Learning about short sales

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Learning about short sales

Curtis Daniels
St. Louis, MO · Member since 2013 · 56 posts · 3 votes

I looked at a house that I saw was selling for $25,000 as mentioned by Zillow. My girlfriend wanted to know more about the house, so we drove by and took a look. The home had no agent's sign in the front yard. By our serendipitous luck, we found out that the back door was open. The home definitely looked like it needed improvements.

A few days later (today), I called the agent listed on Zillow, and she told me that there's a bunch of people asking about it and that the house is under contract. She told me that it was a short sale home. When I asked her what steps I should take, she told me to talk to a lender, get pre-approved, and then start looking at the house.

If you all could help me out, there's a non exclusive list of things I would want to know about shortales and this situtation.

1.) What really is a shortsale and why is the house under contract?

2.) What do you think about us getting pre-approved in this situation?

3.) I also wanted to ask her if I personally could buy the house with ALL CASH as is. Do you think I should call the agent back up about this? Do you think she would be more receptive to me?

Thanks
CJ Daniels

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y

A short sale is a situation where the selling price of the house doesn't generate enough money to pay off the mortgage. The lender agrees to the "short sale", which means they will accept less than the full payoff.

If you're going to finance the purchase, getting pre-approved is a necessary step to buying house, regardless of the details of the house.

If you have cash, then you don't need the pre-approval. What you need instead is your bank statement showing you have the cash in the bank. Yes, cash offers are really strong, if they're real.

If this house is already under contract, you could put in a backup offer. Many times with short sales there's a bunch of negotiation going on between the seller and a buyer and the lender. Then, the lender requires them to put it on the MLS. It goes onto the MLS, but then immediately goes under contract. So, it looks like its for sale, but in reality its already sold.

Short sales are a pain even with cash. The seller's acceptance of your offer is a necessary step, but it doesn't really mean squat. What matters is the lender approving the short. That can take weeks or months and may never happen. REOs, too, can be tough to buy. If you're looking at these types of properties, be prepared to make a LOT of offers. DO NOT fall in love with any particular house.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    A short sale is a situation where the selling price of the house doesn't generate enough money to pay off the mortgage. The lender agrees to the "short sale", which means they will accept less than the full payoff.

    If you're going to finance the purchase, getting pre-approved is a necessary step to buying house, regardless of the details of the house.

    If you have cash, then you don't need the pre-approval. What you need instead is your bank statement showing you have the cash in the bank. Yes, cash offers are really strong, if they're real.

    If this house is already under contract, you could put in a backup offer. Many times with short sales there's a bunch of negotiation going on between the seller and a buyer and the lender. Then, the lender requires them to put it on the MLS. It goes onto the MLS, but then immediately goes under contract. So, it looks like its for sale, but in reality its already sold.

    Short sales are a pain even with cash. The seller's acceptance of your offer is a necessary step, but it doesn't really mean squat. What matters is the lender approving the short. That can take weeks or months and may never happen. REOs, too, can be tough to buy. If you're looking at these types of properties, be prepared to make a LOT of offers. DO NOT fall in love with any particular house.

    3Reply
  • Laura Marshall
    Residential Real Estate Broker · New Bern, NC · Member since 2013 · 31 posts · 20 votes
    13y

    Good Morning,

    I have listed and sold a LOT of short sales. It is always worth submitting a back up offer. Many times the original buyer is gone by the time the approval arrives. Cash is always better than financing. You will need to have proof of funds dated within the last 30 days. If it is a bank statement, it needs to have the name of the lending institution on it as well as the buyers name. Online printouts of bank accounts are usually not accepted by short sale lenders. If you are buying as an LLC or Corp, you will also need your LLC or Corp documents. I have worked with a few short sale lenders that will not approve a sale to a Corporation. If you are purchasing in an LLC, that would be a better choice of the two. One last thing, let the agent know that you are ready to buy, and if she lists any other property, that you would like to make an offer on it. Send your proof of funds and supporting documents or pre-approval (dated within the last 30 days) to the agent along with your request. Also, keep in touch with her, but don't BUG her. Just let her know that you are still out there. I have sold MANY short sales to cash investors who were "ready to purchase" when a short sale transaction fell apart. One last thing....short sales can be very time consuming for an agent. When a short sale is approved, the buyer on the contract is named as the approved buyer. If the buyer backs out, the process must start over again with a new buyer. Do not make an offer if you are not going to follow through. There are a few investors that I will never work with again due to them backing out at the last minute. I am currently working with an investor who "saved the day" on one of my short sale listings. He came through as he said that he would. I currently have 4 other properties in escrow with him. When it is time for the seller to choose an offer to submit, I can say with certainty that a buyer that has a proven track record will not back out, and will close the transaction. If the property is owner occupied, there is often a relocation allowance on the line for the seller as well. If they are up against a foreclosure sale date and the original buyer does not perform, there may not be time to submit a back up offer to the bank.

    I hope this helps.

    2Reply
  • Curtis Daniels
    OP
    St. Louis, MO · Member since 2013 · 56 posts · 3 votes
    13y

    Wow. Thanks Jon. And thanks Laura (wink wink). That really helped me out.

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Laura Marshall:

    Good Morning,

    I have listed and sold a LOT of short sales. It is always worth submitting a back up offer. Many times the original buyer is gone by the time the approval arrives. Cash is always better than financing. You will need to have proof of funds dated within the last 30 days. If it is a bank statement, it needs to have the name of the lending institution on it as well as the buyers name. Online printouts of bank accounts are usually not accepted by short sale lenders. If you are buying as an LLC or Corp, you will also need your LLC or Corp documents. I have worked with a few short sale lenders that will not approve a sale to a Corporation. If you are purchasing in an LLC, that would be a better choice of the two. One last thing, let the agent know that you are ready to buy, and if she lists any other property, that you would like to make an offer on it. Send your proof of funds and supporting documents or pre-approval (dated within the last 30 days) to the agent along with your request. Also, keep in touch with her, but don't BUG her. Just let her know that you are still out there. I have sold MANY short sales to cash investors who were "ready to purchase" when a short sale transaction fell apart. One last thing....short sales can be very time consuming for an agent. When a short sale is approved, the buyer on the contract is named as the approved buyer. If the buyer backs out, the process must start over again with a new buyer. Do not make an offer if you are not going to follow through. There are a few investors that I will never work with again due to them backing out at the last minute. I am currently working with an investor who "saved the day" on one of my short sale listings. He came through as he said that he would. I currently have 4 other properties in escrow with him. When it is time for the seller to choose an offer to submit, I can say with certainty that a buyer that has a proven track record will not back out, and will close the transaction. If the property is owner occupied, there is often a relocation allowance on the line for the seller as well. If they are up against a foreclosure sale date and the original buyer does not perform, there may not be time to submit a back up offer to the bank.

    I hope this helps.

     Excellent info I would just add there are approved and unapproved short sales Usually when you see a very low price the short sale has not been approved by the bank The bank will do there appraisals and will issue an approved price. That is where the action really begins and shakes out a lot of buyers who can not afford the approved price

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