Don’t let the name fool you: buying a home through a short sale can take several months, and buyers need to be prepared for the process.
Short sales aren’t taking as long as they did a year ago, but the average time it takes to close on a short sale is currently 90 to 120 days.
A short sale occurs when a home sells for less than the balance left of the mortgage. The bank holding the mortgage has to agree to the deal, which can bog down the sale, but there are ways to speed up the process.
“It’s a two-to-three month process with an agent that knows what to do,” says Marcus Fleming, market manager and broker at real estate brokerage Redfin. “With an inexperienced agent, it can be an eight to nine month process.”
It’s not enough for the buyer’s agent to be experienced with short sales, the seller or listing agent also has to know how the process works.
“It has to be someone that has a process in place and a full time team that can sit on hold with the bank and go back and forth with the bank to speed things up,” says Brad Officer, a real estate agent in Jacksonville, Fla. “Short sales are a legal process with very legal terms and conditions. I would rather have an attorney representing the seller than a real estate agent.”
Experts say banks are more accommodating when working with experienced professionals during a short sale, with some agents even discouraging a buyer to proceed with the sale if the listing agent is inexperienced.
Short sales can still bring homebuyers deals, but the steep discounts seen one and two years ago are gone because of the housing market’s recent improvement. Inventory in many hot markets is extremely tight so banks aren’t going to be willing to accept less than the value of the home. “Short sales aren’t selling at a 20% discount. Those deals are now a 5% or 10% discount,” says Fleming.
Because banks will likely balk at a low-ball offer, real estate experts recommend making a strong first offer to close the deal in a reasonable time frame. In addition to making a fair offer, be prepared to make a sizeable down payment to show creditability and willingness to accept a house in its current condition. Offers can be contingent on an inspection, but many deals fall through when repair requests are made.
“A lot of agents want the bank to pay the closing costs, but the bank wants it to be clean and simple. The less complicated the better,” says Fleming. “It speeds up the process when the bank comes back and counters if the terms are simple.”
Short sales can be frustrating, especially for first time buyers, but they can prepare themselves by doing their research and planning for a long process.
“You have to commit to the time frame and be willing to wait for the bank,” says Officer. “Some buyer agents want approval within 30 days and that’s not realistic.”