Monday, April 11, 2011

Buying a Short Sale House

For the past few months my husband and I have been going through one of the most stressful processes known to man: trying to buy a short sale house.  Today, we got the great news that we'll be closing by the end of the month, so I figured I would write a little bit about our home buying experience so far.

First off, I want to clarify that buying a short sale can be a great deal.  However, it's also not for the faint of heart, or those in a hurry to move in.  We initially chose a short sale because we had finally gotten orders to WA, and had about three months to find a home.  Little did we know that three months isn't near enough time.  The name is so deceptive! :)

Here is the definition of a short sale from wikipedia: A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.  It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.

After reading that, you'd think that a bank would be quick to sell these properties, in hopes of keeping them out of foreclosure.  However, it was a foreclosure notice that finally got the bank rolling on our offer (nearly four months after we initially presented it).

Here are the top things we wish someone would have told us, before we entered into a short sale contract:

1.  Be ready to offer full price.
This isn't like a regular sale where the seller is ready to bargain with you.  Whatever the list price is, is usually the price agreed upon between the bank and the seller to minimize loss.  In our case, it was almost $45,000 below the appraised value of the home - so you are still getting a good deal!

2.  Make sure you have at least 6 months of wiggle room before you need to move in, but the flexibility to move in earlier if need be.
Since you're dealing with a bank, you never know what the timeline is going to look like.  Even with the best realtor and mortgage broker it's tough to guess what a bank is thinking and what their time lines are.  They're in charge, and can pretty much do whatever they want.  The bank we were dealing with broke deadlines written in contracts multiple times, but this also allowed us to threaten to walk away or change what we were asking for, so it could work in your favor.

3.  Nominate one person to be the point of contact for the realtor and the mortgage broker, but use speaker or conference for those important phone calls.
Having everyone contact me instead of trying to get a hold of either Colin or I, made things so much easier and also facilitated a relationship between all of us that allowed me to be frank with them when I needed to be, and provided consistency for them when looking to get a hold of someone.  However, after multiple conversations where I would try and reiterate exactly what they had said to me back to Colin, we decided to let our realtor know that if it was really important, we would like a call in the evening so we could speaker phone and both be part of the conversation.  This was essential in our cross country dealings.

4.  If you aren't within driving distance, plan for at least two visits.
We had to make two visits across country throughout this process, one to find the house, and another when I thought I was going to have to look for a new one, but ended up doing an inspection instead!  I would say that because the process is so lengthy, it's good to see the house again closer to closing not only to remind yourself of what you're buying, but also to check in on how it's doing.  Since it will more than likely be vacant, it's nice to know if things have gone down hill since you were last there.  For instance, when I went back a second time I found out that part of the back fence had fallen down.  It's now something I can plan for/save money to fix once we get there.  It was also nice to be there for the inspection so he could show me exactly what he was talking about, but I think the report was good enough that it would have been fine to have the realtor there for us if we couldn't make it.

5.  Find a realtor you can really trust, be honest with, and who has your best interest in mind.
Since this is a long, drawn out process that you have little control over, it is so important to have someone who understands your needs representing you throughout the process. We had a realtor who represented both the buyers and the sellers, which we initially thought would make her more driven to seal the deal, but it actually left her more conflicted about who she was fighting for with the bank.  *Aside:  If you're in the military, it's important to have a realtor who understands that our schedules are super unpredictable and can change at the drop of a hat.  Having no control over the house you're buying and the military doubles the stress.

6.  When it comes time to sign the papers, be ready to move at the drop of a hat!
When the bank decides it wants to close, there's nothing you can do to slow it down, and it could be longer or shorter than you had planned.  Be sure you have access to a computer, fax machine, notary, and fed ex so that you can send and receive documents at any time.
*Aside:  For military buyers, keep in mind that if your husband is deployed or out of town, the bank will only accept a POA for either opening or closing documents, so make sure you are both available for one or the other.  If you need to get documents noterized, navy legal will do it for free.

That's it!  I know this is one of my longer posts, but there is a lot of information that goes into buying a short sale.

Our new home!

Feel free to ask any questions in the comments and I'll do my best to answer them!  I'll also update on the closing process once we move into our new home!


  1. i know how you feel! my husband and i are just trying to get pre-approved, which has been crazy... our incomes aren't considered "normal" due to me being a substitute teacher, and him being an acupuncturist... we have been jumping through oh-so-many hoops! i don't know if we'll have any stamina left after we get pre-approved to even consider a short-sale ;) anyway, good luck to you -- did you get your house yet?
    ~ Ellie

  2. It really is such a frustrating process. We didn't have a problem getting pre-approved because of the navy, but I don't have a steady income either, so I had to be left off of the loan documents all together, which also makes it tough. Colin has to be available to sign EVERYTHING.
    Sort sales are exhausting, but if you think about it, you're getting a good deal, and you're helping someone else who needs to get out from under their loan as soon as possible - so it's a win-win!
    Our closing date is set for April 28th, and then we move in on May 19th! so we're almost there!

    Good luck to you guys, too!