A short sale means the seller's lender is accepting a discounted payoff to release an
existing mortgage. Just because a property is listed with short sale terms does not mean
the lender will accept your offer, even if the seller accepts it.
Be aware that the seller need not be in default -- to have stopped making consider a
short sale if the seller is current but the value has fallen. The seller may have
over-encumbered, owe more than the home is worth, so a discounted price might bring
the price in line with market value, not below it.
Do your research before making an offer to purchase. Your agent can find out who is in
title, whether a foreclosure notice has been filed and how much is owed to the lender(s).
This is important because it will help you to determine how much to offer.
If there are two loans, you could have a problem. The first mortgage lender's position is
protected by the second lender, unless the second lender does not want to foreclose. If
a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves
nothing for the second. The first will need to give something to the second to gain its
Hire an Agent with Short Sale Experience
It's one strike against you if the listing agent has never handled a short sale, but it's even
worse if your own agent has no experience in that arena. You need an experienced short
An agent with experience in short sales will help to expedite your transaction and protect
your interests. You don't want to miss any important detail due to inexperience or find out
your transaction is not going to close on time because no one has followed up in a timely
Prepare the Seller for Lender Demands
A lender is not going to agree to a short sale unless the seller has no equity and is
unable to repay the difference between your sales price and the existing loans. Sellers
need to provide a hardship letter to the lender. Sellers may also owe taxes on the
amount of debt that is forgiven.
A seller I know once demanded that the buyer slip the seller $1,000 to be given the right
to purchase the seller's property. We said no. This is fraud. The lender legally pursued
that seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller
receives no money because the lender is losing money.
Submit Documentation & Purchase Offer to Lender
Once the seller has accepted your offer, send it to the lender for approval. You do not
have a deal until the lender accepts. Also, send the lender a copy of your earnest money
deposit. Do not be astonished if the lender asks you to increase it.
In addition, the lender will want to see that you have your own loan available and you are
pre-approved. Send a pre=approval letter to the lender. It will help if your agent sends a
list of comparable sales that support the price you are offering to pay for the home.
Give the Lender a Deadline
Make your offer contingent upon the lender's acceptance. Give the lender a time frame
in which to respond, after which, you will be free to cancel. If the lender is under no
pressure to make a decision, the paperwork will sit on an underling's desk.
Some lenders submit short sales to committee, but most can make a decision within two
to three weeks, providing you have submitted the offer to the individual in
decision-making capacity. Get a name and phone number for the appropriate contact at
the lender. Don't send an offer blindly to a department.
Expect Commission Negotiations
Regardless of the commission the seller has agreed to pay, the lender is actually the
entity paying the commission. The reason is the seller is not receiving any money with
which to pay a commission. Since the lender is losing money, the lender will likely
negotiate the commission directly with the listing broker, who will then share the
commission with your agent.
If you have signed a buyer's broker agreement with your agent, ask if the agent will
waive the difference due or you might have to pay it out of your pocket. Some brokers
feel it is unfair to penalize the agent, but the lender is calling the shots.
Reserve the Right to Conduct Inspections
Generally, the lender will not pay for customary items that a seller would pay. These
include home protection plans for the buyer, buyer credits of any kind and pest / termite
inspections. A buyer will be asked to purchase the property "as is," which means no
It is extremely important that a buyer obtain a home inspection and pay for other types of
inspections such as pest, roof, sewers, septic tanks, chimney or fireplace inspections.
Do not waive your right to obtain these inspections and make your offer contingent on
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