Why Short Sales Take So Long (And Often Fail)
Waiting out a short sale is a lesson in endurance.
That home in your neighborhood with a “short sale” sign on the front lawn has been sitting there for months. Most of your neighbors think that the home is languishing on the market, but the homeowner’s banker knows differently: he has received multiple offers and is considering his next step.
Welcome to the world of real estate short sales, a process that can take months to resolve. And, one that often fails.
If you’re on the buying end of a home or simply a curious neighbor wanting to know when a now empty home will be sold, a short sale is usually a long, drawn out process. Essentially, a short sale involves multiple steps, requiring separate approval from the homeowner and the bank, the latter sometimes gumming up the entire works.
Let’s take a look at an atypical short sale scenario, if there really is one:
Owner falls way behind on his mortgage payments. Falling one month behind on mortgage payments is certainly a problem, but falling three or months behind is sign of deeper problems for any homeowner and will likely result in a letter from the bank to pay up or risk foreclosure. Once a foreclosure notice is received, the clock begins ticking. This is where the homeowner will consider his options including selling his home.
The market really stinks. Short sales are considered when the value of a home drops dramatically and the homeowner has no reasonable hope of ever recouping his investment. At this point, to sell such a home and avoid the sting of foreclosure, said owner considers selling the home for less than what he owes on his mortgage. Banks may also grant short sales for hardship reasons such as death, divorce or illness.
Owner works with a real estate agent — Once the homeowner decides to pursue a short sale, he can approach a real estate agent who is experienced with working with such cases. The owner writes a letter to the bank authorizing the agent to work for his behalf. Every bank has its own requirements for short sales, requiring paperwork to be submitted including tax, bank and income statements, a comparative market analysis and forwarding that comprehensive packet to the bank.
Agent places the home on the market — Bank approval for a short sale comes later, if at all, which means that the seller can put his home on the market at any time. Pricing shouldn’t be too much lower than comparable prices of recently sold homes, but receiving multiple offers can allow the price to rise naturally.
Homeowner receives bids, makes decision — When receiving a bid on a short sale home, the homeowner will negotiate with the potential buyer before settling on a price that everyone is comfortable with. At this point the home is not sold; the agent will send the listing agreement, an executed purchase letter and the buyer’s preapproval letter to the bank. In addition, the agent will make a copy of the buyer’s earnest money check and submit everything with a short sell package.
Bank evaluates the offer — Once the bank receives all required paperwork, the short sale process will seem to have ground to a halt. The bank should acknowledge receipt of the file within a month. Over the next one to two months the bank will evaluate the offer, obtain an appraisal and may assign a negotiator to handle the deal. Several departments at the bank will get involved to ensure that the short sale offer lines up with the bank’s requirements. These delays also allow the bank to entertain other offers. If the bank approves the short sale, then a short sale letter is sent to the respective parties. If the bank doesn’t approve of the short sale, the banker may request more money.
Short sales can take as little as six weeks to complete, but often drag on for three or four months. Only the patient buyer can win here, but many people simply cannot wait out the bank and give up. No bank has to accept a short sale offer as it stands to lose thousands of dollars on the deal. Still, a short sale can prove to be a better arrangement than a foreclosure, for both the home seller and the bank.
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