Since I get asked this so many times, I thought I would post this blog explaining short sales.
A short sale is when the owner on title to the property is attempting to sell the property for below what they owe on the mortgage, or below what they owe on the mortgage plus selling expenses.
The owner of the property can accept any offer that they choose and sign off on a purchase agreement, but if there is not enough funds from the purchase price to cover paying off the mortgage, or mortgages if there is more than one, then the owner must have the permission of the lender(s) who hold the note(s) on the mortgage(s).
This can be a little more tedious if there is a first and second loan on the property, and they are two separate lenders because then you have to submit paperwork from the seller and a copy of the purchase agreement to both. The two lenders have to agree to the short sale.
It is CRITICAL that you have an experienced listing agent to handle a short sale listing properly. If they do not have a good amount of experience with short sales, then the whole deal can be blown due to time constraints and/or technicalities.
They must know how to properly assemble a sellers complete package with the buyer's complete package and submit it to the bank properly. If there is anything missing or wrong, after the bank takes a long while to finally get to the file, the whole waiting process could start all over again if anything is incomplete. And most buyers will not wait months and months not knowing if they're going to get the property while other properties come along in the meantime. So if you are not quick, complete and accurate as a listing agent, you may lose the buyer.
Ever had an experience where it seems like forever waiting on a short sale approval? Well, more than likely the listing agent, if they do not have experience with short sales, may have screwed up and had to re-submit something that was missing in the first place. They're probably not going to tell you that and just right it off as "the bank has so many short sales right now that it takes a while"...blah, blah, blah. Sound familiar???
The key to a short sale acceptance is hitting the right number. So many buyers think that since a property is a short sale that they will make a killing, so they offer ridiculously below asking price. WRONG!
99% of short sale listings are priced aggressively these days. And what the bank is looking for is the magic number. If you offer so low that the bank can actually wait to foreclose on the property, take the time and expense to rehabilitate and list it with a broker, and get closer to current fair market value for the property, then it doesn't make sense for them to accept a ridiculously low offer.
So you need to hit that "magic" number where according to the fair market value for the property, you are offering a price that is really good and a great deal for you as a buyer, but not so low so that the bank can "do it themselves" and get a higher return.
AND REMEMBER, ON OWNER-OCCUPIED SHORT SALES, ALWAYS WRITE INTO THE PURCHASE CONTRACT THAT THE LOAN WILL NOT FUND UNTIL IT IS VERIFIED BY THE BUYER THAT THE HOME HAS BEEN VACATED BY THE SELLER!!! OTHERWISE YOU MAY END UP IN A STICKY, INHERITED, LANDLORD-TENANT EVICTION SITUATION IF THE SELLER DECIDES TO SQUAT ON THE PROPERTY!!