"Can you outline the timeline for the short sale and what to expect next?" my client thoughtfully inquired upon hearing the news that his purchase offer had been accepted.
"I wish I could," I said.
Frankly, I'm not sure anybody knows. From the agents, to the short sale negotiator, to the banks, there doesn't seem to be a set protocol that each lending institution follows with any consistency.
Sure, there are the requisite forms to be filled out and hoops to jump through, but as a buyer of a "short sale" property, you are definitely hanging out there in the GREAT UNKNOWN (and as your Realtor, so am I). I'm not sure if we're in in the "Land of Oz" or the "Wild, Wild West."
"Toto, I don't think we're in Kansas anymore."
Should I congratulate my clients on their successful ratification or offer my condolences? I suppose only time will tell. And time seems to be the one unifying thread with respect to "short-sale" transactions. Don't be fooled into thinking they're a cake walk, short sales take a fair amount of TIME!
While a typical real estate transaction runs about 30 days once in contract and involves fairly firm time lines that both parties strive to meet; short sales can extend weeks beyond the 30-day standard, if not months . . . . So if enrolling your child into school in time for the fall semester is high on your priority list, steer clear of a "short sale" by all means.
In sharp contrast to a standard 30-day contract, the Short Sale Addendum establishes a minimum of 45 days to work through the channels AND it isn't uncommon for the listing agent to ask for more time while the bank determines if the seller will indeed qualify for "hardship" and thus agree to "short" the sale. (We're waiting, we're waiting, we're waiting . . . well beyond 45 days.) The hurdles become higher if there is more than one lien on the property, as every lien holder must agree to absorb a hit, take pennies on the dollar, or worse yet, surrender the debt altogether. (You might imagine that doesn't go over too easily.)
Let's back up a moment to explain to the uninitiated that a "short sale" is one in which the seller is selling the home for less than they owe on the outstanding mortgage, thereby creating the "short" component. In order to successfully transfer title, the lenders must agree to take substantially less than they are owed on the property. Got it? (I knew you would.)
Before you start down the yellow brick road, understand that 9 out of 10 short sale requests won't qualify, so the odds are very much against you (I suppose this is where a good "short sale negotiator" earns their keep?) Understand that the "short sale negotiator" is neither the listing nor the selling agent, but a third party brought in to keep things on track and negotiate the loss - AND FOR THAT, THEY CHARGE A FEE - which is often passed on to the buyer (the assumption being that the seller has no money).
Still, there is good news, which is that no monies are exchanged until after the bank agrees to accept the offer - not even your 3% good faith deposit! (Oh, that makes it more palatable.) And inspections needn't be scheduled until then either - unless you want a clearer picture of the property sooner, rather than later. In the big picture, it may be worth a few thousand dollars to find out the condition of the home, rather then hanging out on a limb for months, while missing out on other viable opportunities.
Now for the bad . . . the bank reserves the right to take a higher offer at any point in the transaction (ANY POINT!), so regardless of an acceptance, you're not assured the home is yours until you actually close escrow. In short (pun intended), you could wait for months, only to get passed at the finish line by another buyer willing to pay more. (Oh, that's not so nice.)
Moreover, as the buyer, you are entirely committed during the decision period. What? (The buyer can't breach the contract, but the bank can? Right.) So depending on the time line on which you agree, you are going to be locked in for a minimum of a few months - at the very least. (Hmmm . . .)
It's also important to note that banks are less inclined to negotiate on the price after having already approved an offer based on any negative findings during your inspections, as they are already taking a substantial loss on the loan. Mind you, I've little sympathy for the lending institutions in this scenario, but they may have a point. Banks answer to shareholders and bottom lines - not to buyers looking for a steal. Not to mention that you are probably dealing with someone on the corporate food chain who may or may not care much about your concerns (or your desire for a good deal). In all likelihood, you are just a random number to them. (If they only had a brain.)
So in closing, IF you have time to spare (LOTS of time), IF you don't mind being locked into a home you have no guarantee of owning, IF you have the patience of Job, and if you have a strong stomach for risk, a Short Sale may be the "Emerald City" you desire. Just keep your broomstick handy because you may need it. (Can I please interest you in another property? One that hasn't fallen on the wicked witch of the east?)
But if you insist on pursuing the short sale avenue, just keep saying: "There's no place like home, there's no place like home, there's no place like
home. . ." .
Julie Gardner, has been writing The Perspective for 15 years and has published more than 500 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.