Preparing a Short Sale Offer to Purchase

If you decide that you want to write an offer on a property that is being sold as a short sale, you need to understand that your offer will not be the same as a standard offer on a property that is not being sold subject to bank approval.

The first noticeable difference is that your offer to purchase will be subect to the short sale lender(s) approval. No matter how badly the seller wants to sell you that home (and no matter how quickly he/she wants to close the transaction) the entire transaction depends on whether or not the short sale lender(s) will decide to approve of the sale. As a buyer you want to make sure your offer is written in a way that allows you to cancel the offer at any time with no consequence.

Another difference you should be sure to include in your offer is how contingency time periods are handled. It's in the buyer's best interest to delay the start of all contingency periods (such as loan contingency, inspection contingency, appraisal contingency, etc.) until you have received written proof of the short sale lender(s) approval. This allows you to wait patiently without being required to spend money on an appraisal, inspections, etc. until you know for certain that the short sale lenders are willing to cooperate.

Having the right expectations is key to successfully purchasing a short sale. One important thing to understand as a buyer of a short sale is how long you may have to wait to get an answer to your offer. Once the seller has accepted your offer, he/she will need to submit the offer to his/her lender(s). From that point, your waiting time could be two weeks to three or four months (or longer) until you hear from the lender(s). Your answer at that point could be yes, no, or maybe so. The lender may want to change certain elements of the offer, or the lender may decide not to approve of the short sale altogether. Be sure to talk with your exclusive buyer agent up front about all of these matters.

Be sure to include a pre-approval letter from your lender to show the bank that you are a qualified buyer. Most banks will not even consider an offer from a buyer without one. In fact, some banks want the pre-approval letter to be on bank stationary (as opposed to mortgage broker stationary). Prepare for this ahead of time. Also include a copy of your earnest money deposit check. You may be asked to deposit that directly into an escrow account right away, or you may be able to hold onto it until you receive short sale lender(s) approval. Either way, the short sale lender will want to see a copy of the deposit check.

Your exclusive buyer agent should prepare a Comparative Market Analysis to submit with the offer that justifies your offer price. If you envision that you may ask the lender(s) to pay for some repairs, then it would be prudent to submit photos and repair estimates with the offer. Banks tend not to like it when buyers ask for a better price or more money for repairs after an approval has already been granted.

Your exclusive buyer agent will prepare the offer and any addendums that apply for you to review and sign. Ask your agent to explain how the offer verbiage protects your interests. Once your offer has been accepted by the homeowner, you want to make sure that a complete package is being submitted to the short sale lender(s) for approval. You should be sure that your agent or the listing agent prepares a seller net sheet or a HUD-1 (prepared by a title company or an attorney) to submit to the short sale lender(s). Also, be sure that the listing agent has the homeowner's portion of the short sale package prepared to submit with the offer.  The key here is to submit a complete package one time! If important documents are left out, your short sale will take even longer to get approved.

For more questions about preparing short sale offers, contact Globella Buyers Realty today.