Short Sale means that the property or home is worth less than what is owed on it. The Seller is asking the bank to forgive part of the debt or for an unsecured promissory note for the difference in what is owed. The home may or may not be in default (going through the foreclosure process.) It is highly likely that a Las Vegas Short Sale is in some part of theprocess of foreclosure.
Short Sales are currently (Jan 2012) the majority of the active inventory (47%) – yet they are the least closed transaction type in the Las Vegas Valley (27%)!
The Number 1 rule for a Short Sale buyer is to NOT FALL IN LOVE with the home until it is closed!
How are Short Sale homes priced?
Short sale homes are priced just as traditional sales are priced – the seller sets pricing. Once the servicer(s)/investor(s) receive an offer they order something called a “Broker Price Opinion” (BPO) to determine selling price. Many order multiple BPO’s and the process is usually started when the home defaults.
What are the steps for buying a Short Sale home?
The first step if you are financed is to get pre-approved from a lender to buy the home so you are looking in the appropriate price range. If you are an all cash buyer, the real estate agent will need Proof of Funds (POF), Verification of Funds (VOF) or Verification of Deposit (VOD) to present to the list agent with your offer. Please be aware that “all cash” offers will NOT expedite the process of a short sale.
The next step is to work with a real estate agent so we assist you on analyzing your housing needs. What Area? What Price Range? What Size? How Many Bedrooms? You get the picture! We will set you up on an MLS search AND direct you to some phenomenal IDX sites.
You found the home of your dreams! YAY! Now we get to do the fun stuff (the above was just the easy stuff!) We get to write a contract! Your real estate agent should do an abundance of work behind the scenes to find out if there are multiple offers on the property and pull comparables.
There are several reasons for comparables – you don’t want to pay too much for the property (of course!) You also want to know if the home may or may not appraise where the lender needs it to appraise at! If there are multiple offers on the property your real estate agent also needs to analyze the numbers to present a price to you that will raise your odds for getting bank acceptance and beating out all others vying for the same home that you want! It is essential to work with a real estate agent who understands pricing structures in today’s market: Owner Occupied Non-Distressed, REO and Short Sale prices are all different! Remember – the bank has the option to REJECT your price & terms in a short sale!
Once we put your offer together, we submit it to the listing agent. With your pre-approval letter (if financed) or POF (if all cash) and a copy of your earnest money deposit (EMD.) The listing agent submits it to the seller and once it is accepted it gets sent to someone called an “Negotiator” with the bank. The Negotiator then, in turn, helps with the decision of accepting, rejecting or countering your offer. The time lines on this process vary widely from agent to agent, investor to investor, negotiator to negotiator. The process be as little as a couple of weeks or as long as a couple of years. Nevada does have a new law requiring an answer in less than 3 months.
Once the bank makes a decision on your offer, several things must happen. First, the sellers have the option of accepting or rejecting the terms of the short sale approval – after all this is a seller contingency. Short Sale Sellers have lingering consequences (tax, legal and financial) so sometimes the decision is tough for them and they must consult with CPAs and attorneys. Once they accept the terms & conditions of the contract, the “short sale contingency” is removed. It is now the buyer’s turn to accept or reject the price, terms & conditions in the short sale approval.
So both buyer and seller agree to price, terms & conditions.
Here is where the fun really starts: Your Due Diligence period (as defined in a short sale addendum written with contract). This is the period where you need to meet all of your contingencies in your contract such as inspections, appraisals, verifying the property is insurable, loan approval, etc.
Even though many short sale properties are “as-is”, you should still be encouraged by your real estate agent to put in a contingency get an inspection done. You may want to know of any pending problems that may be looming right after close of escrow. This will allow you to back out of the contract if the bank or seller is not willing to fix major defects (mold, structure, broken furnace: you get the picture,) or you do not want to fix those problems yourself after close. More than likely, no one on the selling side is going to want to fix this.
You will want to research several Home Warranty companies if we successfully negotiated a home warranty to be paid by the seller. When you choose the company and the plan, simply let us know and we order it for you and send the information to title.
We are also communicating with your lender in regards to the loan approval and appraisal so everything can get done on time. We also like to make sure that if there are any issues with lending that need to be taken care of, they will early on so we don’t have major delays to your closing time frame.
One other thing you will have to do is read your “Certificate of Resale Package” if you are purchasing a home located in an HOA. By law, you have five days to read this material to make sure you can “live” within the bylaws of the HOA.
Common Problems during due diligence on an Short Sale property:
- Home Inspections: There seems to be a lot of deferred maintenance (previous owner did not do preventative maintenance on the home) so there can be plenty of structural or mechanical problems associated with the deferred maintenance
- Appraisal: Deferred maintenance issues may be flagged by an appraiser which, the lender, in turn may REQUIRE repairs to be completed prior to funding of the loan. Many times the seller in a Short Sale will not correct those defects.
!!!Final Walk Through Issues:
Since the home is (more than likely being conveyed as-is) you may have to waive the walk through inspection. YOU SHOULD STILL WALK THROUGH to make sure the property is in the same condition the day you wrote the contract.
!!! Many times personal and real property disappear in a short sale.
Crazy things like door knobs and light switches……keep this in mind when you purchase the property as a condition in your contract may be that the property is conveyed AS-IS and there is no recourse to go back and request those items get taken care of or reimbursed at close!
Loan Docs arrive to title (FINALLY!) and you make an appointment to sign. Loan funding conditions (if any) need to be met to get the loan funded.
The bank now needs to do their job – HUD sign off . Sometimes it takes a while to get this done. It can take anywhere from one day to several weeks.
Recording, File Disbursed, We Closed, We Made it – HIP HIP HOORAY – YOU GET KEYS!
If you are thinking about buying an REO (Foreclosure or Bank Owned) property in the Las Vegas Area Please Call: to speak to one of my Las Vegas home buyer’s specialists.