There are hundreds of potential things that can go wrong in a regular real estate transaction, but all of those aside, what is it that makes short sales so difficult?
Here are the TOP 8 problems that could derail your short sale transaction:
- The listing agent could mess up the short sale paperwork – and you might not find out till months down the road.
- There is a LOT of paperwork.
- Best case scenario this would simply cause unnecessary delays.
- Worst case scenario, the transaction is doomed from the start.
- The seller could be unqualified for a short sale – and you might not find out till months down the road.
- They might not have a good enough hardship
- Someone could have cosigned for their loan
- The bank can kick out your accepted offer and instead accept a more desirable back-up offer.
- They can do this at any point prior to giving you an approval letter.
- Your offer is deemed too low! – The bank can and will refuse it or counter.
- FACT – Most short sales are priced below market value to attract a quick offer.
- Many buyers confuse LISTED price with VALUE of a home, so it is difficult for them to submit a good offer on a short sale.
- You should ALWAYS check comparables before writing an offer to establish value.
- The home is FORECLOSED before agreement is reached!
- Investors call short sales “pre-foreclosures” for a reason. A short sale is merely a stop along the road to foreclosure.
- Just because you’re negotiating with the bank does not mean they will delay the foreclosure date, so if things don’t happen fast enough, the transaction will be over.
- Buyers run out of cash! – If there are two lenders involved.
- The 1st lender might give you their approval, but the 2nd lender will always demand a payoff on the side, anywhere from 5-25% of their loan is typical.
- These funds are never included in the purchase price, and can not be rolled into your loan.
- You should have enough cash for your down payment, your closing costs, AND the payoff of the 2nd lender.
- 2nd lender might not agree to show their payoff on the HUD
- That is a deal breaker for FHA loan
- Short Sale Lenders must still approve the final HUD – Everything is approved and escrow is coming to completion, but days before close the HUD needs to be approved or escrow can’t close.
- At a minimum this could create a delay and postpone close of escrow
- Worst case scenario is the bank/investor changes their mind (decide they’re better off in foreclosure) , they then proceed to nit-picks some details on the HUD, creating enough of a delay for their short sale approval to expire and cancel the transaction.
These are not the only problems to affect short sale transactions, these are simply what I consider to be the most common ones.
Short sales are far from short and far from easy – Anyone who tells you otherwise is not telling you the whole story.
If you have any questions about short sales or anything else related to real estate… or if you are thinking of buying or selling a home in the bay area, CONTACT US today for a free consultation!