Making a purchase offer on a home is always an art, but making one on a short sale listing is especially tricky. A short sale is when homeowners sell a home for less than what they owe on a mortgage. This means sellers are highly motivated since they want out of the home, but your offer must be approved by both the seller and the seller's lender.
From what you should do (have plenty of patience) to what you shouldn't (demand extensive repairs), these tips can help you put in a short sale offer that has a good chance of getting approved by both the seller and the lender.
Key Takeaways
- Make sure you check comparable sales and offer an attractive earnest money deposit.
- You'll need to be patient with the bank and be ready to buy the home as-is without asking for repairs.
- A preapproval letter and short inspection period can strengthen your position with the seller.
Offer a Strong Earnest Money Deposit
There's no set rule for how much money to submit with your purchase offer. Some homebuyers put down an earnest money deposit of $1,000, but an amount between 1% and 5% of the sales price speaks volumes. It says the buyer is serious.
Real estate contracts typically call for the earnest money deposit to be placed into a trust account. This protects both the buyer and the seller in the event the sale falls through.
Check the Comparable Sales
It can be tough to know how much to offer on a short sale. Some short-sale listings are deliberately priced way under market value to attract eager buyers, but that doesn't mean the home will sell at that price. The homeowner may just be fishing, and the lender may not take that much of a loss. A real estate agent experienced with short sales can help you decide how much to offer.
Don't Ask for Special Reports or Repairs
Any inspection you ask the seller to pay for will lower the lender's bottom line. The lowest offers are rarely accepted. Don't ask for seller-paid pest inspections, roof certifications, or home warranty plans. Even if you see a need for major repairs, don't try to negotiate them. You'll most likely need to buy the home in as-is condition.
Give the Bank Some Time
Although you might have news within three to four weeks, many lenders take at least six to eight weeks, sometimes even longer, to approve or reject short sales. Give the process two to three months and be prepared to act immediately if approval arrives earlier.
Assure the Seller You'll Wait
The biggest problem that short sale listing agents and their sellers face is buyers who walk away. Buyers may be daunted by the bank approval process, or they may walk away for other reasons. For example, occasionally buyers write offers on multiple homes, hoping to take the first offer that sticks, which is risky and considered by some to be unethical.
Demonstrate your good faith by reiterating to the homeowner you're willing to hang in there while the lender decides and that you're not house hunting in the meantime.
Offer to Pay the Seller's Fees
If there are certain closing costs that the seller typically pays in a short-sale situation, the seller's lender will most likely cover them. However, if you agree to pay part of those fees, it'll win you kudos. Doing so will net the lender more money and could well tilt things in your favor, even if the lender receives an offer identical to yours.
Shorten Your Inspection Period
Standard purchase contracts give the buyer a specific time frame in which to conduct inspections. That means the home is basically off the market while the buyer does due diligence, and the sale is not considered solid until that contingency period has been removed. Whatever is the norm in your state, if you can promise to do your home inspections in a snappier amount of time—within a period of 10 to 14 days—your offer will hold greater appeal.
Note
Don't skip getting the home inspected. Even though you're likely buying in as-is condition, it's best to know what the as-is condition actually is.
Provide a Strong Preapproval Letter
Little stands out more among a sea of offers than a lender preapproval letter, which is a conditional commitment to give the buyer a mortgage of a certain size. A big question on the short sale seller's mind is whether the buyer is financially capable of closing the transaction. Having a statement in writing effectively indicates that you have the financing in place to close the sale.
Short sale situations come with a lot of complications. Sellers have to accept a price that won't cover all their costs, and the lender has to approve the bid.Being generous with your time, money, and requests can do a lot to seal the deal.
FAQs
Can you negotiate a short sale price? While it's possible to negotiate the purchase price for a short sale, there's no guarantee the seller's mortgage lender will approve the price. It's also unlikely the seller will be able to make concessions or assume additional closing costs.
Why do banks prefer foreclosure to short sale? ›
Short sales tend to be lengthy and paperwork-intensive transactions—sometimes taking up to a full year to process. The pre-foreclosure process can also be quite lengthy, but once the lender has seized the property, the sale usually happens very quickly so that as much money as possible can be recouped.
What is a reasonable offer on a short sale? ›
If it's below value, that is generally acceptable. Just not excessively below. Think of your offer as being “within shot.” For example, a Seller that has an FHA loan trying to get short sale approved, a common number the bank is willing to approve is a minimum “net” 88% of the bank's appraisal price.
What are the pitfalls of a short sale? ›
What Are The Risks Of Buying A Short Sale?
- It's A Lengthy Process. Don't be fooled by the phrase “short sale”. ...
- The Lender Must Have Final Sign Off. ...
- You're Missing Out On Other Homes. ...
- You're Buying As-Is. ...
- There's Usually A Bigger Down Payment.
Just because a seller accepts a short sale price doesn't mean that the lender will, and the list price may be far below what the lender wants. Banks may reject offers when the price is low, the seller or buyer doesn't qualify, the application is incomplete, or the loan has already been sold.
Who loses money on a short sale? ›
Put simply, a short sale involves the sale of a stock an investor does not own. When an investor engages in short selling, two things can happen. If the price of the stock drops, the short seller can buy the stock at the lower price and make a profit. If the price of the stock rises, the short seller will lose money.
Why do sellers choose a short sale? ›
Short-Sale Benefits For Sellers
In a typical sale, the seller pays the agents' commission fees. However, in a short sale, the lender pays these fees. A short sale will also prevent a seller's home from going into foreclosure. Foreclosure can have a more detrimental impact on the seller's credit score.
Why do banks take so long to approve a short sale? ›
Part of what makes this process take so long is that the bank doesn't tell you how much it wants for the property. Instead, they look at the offer from the buyer and decide whether to accept or reject. Waiting to hear back from the bank is the first of the delays in the short sale process.
Do banks usually negotiate on foreclosures? ›
If buying from a bank, you'll need to sharpen your bargaining skills and start with a lowball offer on the property you want. Banks that have accumulated sizable inventories of foreclosed properties will be more inclined to negotiate on price.
Who benefits from a short sale? ›
Advantages and Disadvantages of a Short Sale
Short sales allow a homeowner to dispose of a property that is losing value. Although they do not recoup the costs of their mortgage, a short sale allows a buyer to escape foreclosure, which can be much more damaging to their credit score.
When you find a short sale home you'd like to purchase, it's best to make an offer quickly – but don't lowball it. Although a short sale often means a lower purchase price, the mortgage lender wants to recover as much money as possible. Therefore, the seller is more likely to accept a competitive offer.
Which is the most likely consequence of a short sale? ›
The short sale is often preferable to a foreclosure, but it is not a resolution to all a homeowner's financial woes. Aside from potential tax liability and credit implications, if the homeowner is expected to pay the difference between the sale price and the mortgage, that can compound the financial difficulty.
What's the most common alternative to a short sale? ›
Price: Foreclosed properties are usually sold below market value. Quick sales: Because most foreclosed homes are sold as is and will likely be a cash transaction, the sale timeline is faster than a short sale.
Can a seller make money on a short sale? ›
For a short sale to happen, both the lender and the homeowner have to be willing to sell the house at a loss. The homeowner will make no profit, and the lender will actually lose money for selling the house for less than the amount owed. A short sale is not a do-it-yourself deal.
Can you negotiate a short sale? ›
You can negotiate for a favorable price on a short sale. But first, make sure you understand the interests and situation of the other parties. The lender's primary goal is to recoup sufficient money to cover the outstanding mortgage debt.
Can a bank come after you after a short sale? ›
Although the lender might agree to release its mortgage lien in exchange for the short sale proceeds, it might not release you from personal liability on the debt. So, if state law allows it, the lender could potentially come after you for the deficiency.
Why would a lender do a short sale? ›
Short sales and foreclosures are both processes that occur when homeowners struggle to keep up with their mortgage payments or find that their mortgage is underwater. An underwater mortgage is when a borrower owes more money than the home is worth.
How does lender benefit from short selling? ›
When shorting, the seller borrows the shares to be sold. The lender then receives a rebate from the borrower of the shares, who pays a fee. This will vary in cost depending on the amount of shares currently available to short.
