"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. . ." .
"I just paid two parking tickets for the Toyota," I said to my husband and sons, somewhat annoyed, "Do you know anything about them?"
"Not mine," they replied in unison.
"What's the deal with this sticky spill down the wall in the family room?
"What spill? said the boys innocently.
"Who ate the last piece of cake and left the dirty cake plate out?"
"Don't know? Wasn't me." (Really?)
Hmmm. . . There seems to be a pattern of intentional ignorance with my family.
Whether it's an empty milk carton, an open cupboard, or the garbage bag blatantly ignored by the front door, in my house, chances are that nobody knows anything about it and NOBODY'S accountable either! (That needs to change.)
"Accountability," I travel that road a lot in the world of Real Estate but sometimes it can feel to tentative buyers that no one's accountable when it involves a disclosure package for a "Trust Estate;" the logic being that one cannot expect the trustees of an estate to have personal knowledge about the condition of a home they haven't occupied in many years - if ever. It's also the law. "Exemptions" protect the innocent from having to "guess" at information about a subject property for which they can't possibly have first-hand knowledge. (Oh, that makes sense.)
Still there's little comfort in receiving a stack of documents with "exempt, exempt, EXEMPT!" scrawled across the majority of them. While it may be reasonable, exemptions don't exclude the trustees from passing along information they in fact, know to be material to the home.
For instance, trustees can't purposely misrepresent a property by claiming exemption or ignorance if they have first-hand knowledge that their mother recently passed away in the home, OR that the house sits next door to a police station, OR that the garage floods every winter when it rains (especially if they are the ones who snake the clogged drains each year!). That simply won't fly.
Trust exemptions aren't "Get Out of Jail Free" cards. Even trustees have responsibilities, such as strapping the water heater, adhering to "Point of Sale" ordinances, and passing along pertinent information that's relevant to the house - and to the new buyer!
Dining at House of Curry on College Avenue last week, my girlfriend announced that she'd recently been promoted to a new position at her job. "I'm an 'Accountability Manager'," she proudly exclaimed. "My job is to make sure people are accountable!"
How great is that? An "Accountability Manager" - I want that job (although my husband my argue that I already own the title).
In the world of Real Estate, The Disclosure Package is something akin to the "Accountability Manager" - it's an attempt at making sellers "accountable" as to the condition of their homes and at educating the buying public. And in my humble opinion, a thorough disclosure package not only protects the buyers, it protects the sellers as well; the fewer surprises with respect to a home, the better you all sit. (Law suits happen over undisclosed items and misunderstandings - not those you willingly accept and acknowledge.)
Still, when one discovers new items - not previously disclosed - during the inspection process, just who should be "accountable" for any additional costs? (That's a good question. The answer is tougher to come by, but it's often where the rubber meets the road.) With all due respect to the Fourth of July, this is where the real fireworks begin.
As I frequently remind buyers, identifying the house is the easiest part of the transaction; negotiating the contract and closing escrow are the toughest! You may be able to find your home on line, but negotiating through these types of bottle rockets can be treacherous stuff.
If the accepted offer is already "less than asking," the sellers may justifiably feel that a discount was given upfront - regardless of any new discovery (Buyers, your request for additional dollars may fall on deaf ears). If the accepted offer is "over asking," the buyers may legitimately feel a credit back is a reasonable request (Sellers, the stark reality is that it may be). Either way, negotiations, based upon inspections, are often an unwelcome part of the process that neither buyers nor sellers much enjoy as it potentially opens the door for departure. (That's where an experienced agent earns her keep.)
Boom! Bang! Pow! Here come the fireworks.
Boom! Bang! Pow! If all parties remain calm, there's a good chance we can navigate our way through to an answer.
As long as everyone is willing to be "accountable."
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.