Negotiating a Short Sale—What Do I Need to Know?

If there is any sort of a silver lining in today’s real estate market, it’s that it is a great time to buy a home. Faced with the possibility of foreclosure, many homeowners are opting to sell their homes for less than the amount they owe for them—also known as a short sale.

So, what’s the catch? At first glance, a short sale seems to offer a type of “win-win” situation to sellers, banks, and buyers. Not only can the buyer get a great deal on a new home, but the homeowners keep their credit ratings in tact while the bank gets more money back on its loan than it otherwise would if the property went into foreclosure. But buyers beware: Negotiating a short sale can be tricky, and without the proper planning, you could wind up in a bad deal.

Knowing the Game  

Unemployment, rising debt, and decreasing house values are all contributing to the increase in short sales. In fact, recent reports indicate that 25.4 percent of homeowners in the Chicago area are facing foreclosure, owing more on their homes than they are actually worth. And with another 5.3 percent of Chicago-area homeowners barely treading water, it is no wonder that many experts are referring to 2011 as “the year of the short sale.”[1]

But with lenders typically only approving two out of every five short sales, it seems like buyers are facing a losing battle.[2] So, how do you ensure success? First off, one of the most important things that any buyer considering a short a sale should do is to find out everything they can about the seller—and to consult an experienced real estate professional. A qualified agent will help you to find short sale properties and direct you throughout the negotiation process. He or she can also recommend an attorney with experience handling these types of transactions.

Why hire an attorney? Well, as Judi Kessler, a realtor with Century 21 Affiliated who specializes in short sales succinctly states, “Lenders pay attention to attorneys.”

Sealing the Deal

Kessler is quick to add that only buyers with no time constraints, such as leases, should do a short sale. Because the lender has to approve the sale first, it can take anywhere from two to four months—or longer, in some cases—to close the deal. Interested buyers have to been willing to play the waiting game—but they should also know when to walk away.

In order to assess the likelihood of a short sale, Kessler recommends that interested buyers work with their attorney to find out the following:

  • How far behind are the sellers on their payments?
  • How far behind are the sellers on taxes?
  • Is there more than one mortgage on the property, which will require the approval of multiple lenders?
  • Is the lending person you are dealing with authorized to approve the short sale?

Prospective buyers should keep in mind that lenders usually will not consider a short sale unless there is an offer ready. Make sure you have your finances in order and the money for the down payment on hand.

The bottom line is that short sales can be a great option for buyers—as long as you take the time to plan beforehand and do your research. Understanding the short sale process and knowing what to expect will help you get the best deal possible.

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