Buyers Short Sale FAQ
If you have a question about short sales and cannot find the answer listed below, feel free to contact me at 719-660-9058.
What is a short sale?
A short sale is the situation in which a homeowner cannot sell their home to cover the amount owed on their loan and is therefore upside down. It is up to the lien holder(s) as to whether they will accept the shortage and release the lien.
How long will the short sale take?
If the short sale is in the very beginning stages of the process, buyers can expect it to take longer. Every bank is different and if the lender is local, it should take less time. Lenders are getting better with short sales but still have a long way to go. If the loan is VA or FHA backed, it can take longer to obtain approval. Additional liens or judgments can also cause delays in short sale approval. Working with a buyer’s agent who has experience with short sales in Colorado Springs is very important.
Can I offer less than list price?
It depends. If the listing agent has been given a firm price by the lien holder on what they are willing to accept, then a lower offer may not be accepted. On the other hand, if the listing agent has not been given a price by the bank, the buyer can offer less than asking price. There are instances where the listing agent makes continuous price reductions until an offer is received. The bank may feel the purchase price is too low for the actual market value of the house regardless if buyer and seller agree on the price. It is ultimately up to the lien holder whether or not to approve a short sale.
Will the seller counter my offer?
The seller may decide to counter your offer or let the bank decide if the offer is fair. Either way, the bank will order an appraisal and depending on the appraised value, may counter the buyer at a higher price. The investor may have strict guidelines on how much they will need to net and that is usually a percentage of the appraised value.
Will the listing agent submit more than one offer to the bank?
It depends. Your Colorado Springs Realtor® will know what questions to ask the listing agent when it comes to short sales and this is one of them. Most agents working with the seller submit one offer at a time to the bank.
Will the seller take care of repair items that come up in the inspection?
Most likely, they will not. Depending on the sellers’ hardship situation, they may not have any funds to cover repairs. Typically, the bank is not willing to cover inspection items unless they are going to affect a buyer’s ability to obtain a loan. Many short sale properties are sold as is.
Will the bank cover my closing costs?
Depending on the investor, all of your closing costs may be covered or they may be firm in only covering a percentage of buyer closing costs (e.g. 2%).
Can I terminate the contract if the bank is taking too long to approve the short sale?
Depending on the contract and short sale addendum signed by both buyer and seller, the buyer may be able to terminate the contract prior to short sale approval. The addendum also has a short sale approval deadline that all parties agree to. Sellers may also terminate the contract prior to short sale approval if they decide to file for bankruptcy or a Deed in Lieu of Foreclosure.
Can I lock my rate when we go under contract?
No. Lenders will not allow you to lock your interest rate until short sale approval is received.
If I am under contract and waiting for approval, can I offer on another property?
It depends if you are planning on purchasing more than one property. If you only want to purchase one property, it is very risky to offer on another property while under contract for a short sale.
Can I purchase a short sale property from a family member?
Nearly every bank has an “arm’s length” affidavit that must be signed by all parties agreeing that the short sale is an “arm’s length” transaction affirming that none of the parties are related or affiliated. In fact, banks may also view it as a conflict of interest if the purchaser works for the same bank that is holding or servicing the short sale.