A client of mine, who’s considering making an offer on a condominium, asked these questions about it being a short sale. (Short Sale: The amount the lender will get from the sale is “short” the amount due them to fully pay off the loan.)
Her Questions: Regarding the short sale, would it be quicker with a cash offer? Can you negotiate the price at all? What info should we be aware of regarding a short sale. I assume we would still be getting title insurance and I won’t buy anything without an inspection.
My Answers: Regarding the short sale, I don’t know how much the current owners actually owe the bank, but the bank is obviously owed more than the $149,900.00 asking price, since this is a short sale. In a short sale, it is not just the seller that has to accept your offer. First, the seller does have to accept the offer, but then they send it off to their lender to see if the lender will also accept that amount.
I don’t know if the lender, in this particular case, has already approved the $149,900.00 as a sale price or not. Sometimes we do know that the price has been pre-approved by the lender. Once, we saw it where the lender came back and said the only amount they would accept was more than the asking price! (That deal didn’t close.) But this shouldn’t happen if the sale price has already been approved by the lender.
Regardless, it can take a long time for the lender to respond to an offer. It can take up to four months! Or it can move much quicker. Comfort with ambiguity, as well as patience, thus is greatly needed in a short sale.
We can of course offer less money than the asking price, but since a short sale isn’t the usual offer/counter-offer scenario with the lender as it is with a typical just buyer-seller purchase, it’s best to offer your best shot right up front.
Yes there is a benefit to offering cash – likelier acceptance by both the seller and the lender because it offers them a greater likelihood that the deal will close since it isn’t dependant on the vagaries of the current lending environment.
Will cash make things move quicker? Yes, in that you should be able to close within a couple of days of the lender giving their approval to your offer, rather than having to then wait for your own loan to be approved. And possibly it would help the lender make up their mind quicker.
Yes we would do an inspection, although the lender won’t make any repairs, and you’ll be buying it “as is.” But we will make the purchase conditional on the inspection results. If you don’t like what is found, you can break the deal and get your earnest money back. If you proceed with the purchase, you’ll at least know what you are getting into. And yes we will get title insurance.
The other thing to know about a short sale is that unlike under just a normal contract (a short sale has a short sale addendum attached to the contract), the seller can back out of the deal, as can the buyer, at any time and for no reason. So, although we’ll do everything we can to prevent that from happening, you’ll have to be willing to live with more uncertainty while we are under contract with a short sale than you normally would have to.
Tags: real estate short sales
