Why do short sales take so long?

Re: Why do short sales take so long?

• Nechie122 member

  

  October 2012

  The "short" in short sale actually has nothing to do with the timeline. In a short sale, the bank agrees to take less for a house than what is owed on it (i.e. the bank comes up "short" on its loan). It's a way for a buyer to avoid foreclosure and usually done when a mortgage is underwater. The reason it takes so long is the extra layer of approval required from the bank. In some markets, there's significant backlog from short sales and they're not really a priority for the bank either. So your offer on a short sale might sit and sit before the bank green lights or rejects it. Short sales are also usually sold "as is." 

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• LoveKiss member

  

  October 2012

  As the PP said, short sales take a long time for several reasons.

  1) The seller's bank must approve the sale. If the seller has a 2nd mortgage, both banks must approve the sale.

  2) The seller's bank is going to lose money, so they have little incentive to move very fast. They also have oodles of other short sales to deal with. Your deal means nothing to them.
  

  3) The approval process itself is several steps. first the seller must submit the contract and additional paperwork to their bank. Then the bank has to assign someone to be their rep on the deal. The rep must order the BPO. The BPO must be performed and submitted to the rep. The rep must review the BPO and decide with management what price the bank will accept for the house. That number may be MORE than you are under contract for. Then the buyer has to negotiate with the bank rep. Negotiations often stall or fail as the bank tries to get top dollar for the property. You may or may not come to an agreement on price.

  4) If you and the bank can agree on a price, you now need to do your home inspection. You may find deal breakers, and the sellers are too broke to fix anything. You're out of luck.
  

  4) The bank does not care what your closing schedule is, when your lease is up, how long your rate lock is for, etc. They work on their own schedule to get paperwork done (such as releasing the seller from future financial liability for the loan. The seller will not go to close if the bank hasn't finished that paperwork. Again, the bank doesn't care. Not their problem.)

  But if you make it through all of that and have time to wait out the bank, you can get a steal. Our home inspector purchased a short sale valued at more than $1 million for just $500k. It took him 18 months to close the deal.
  

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• vpine member

  

  October 2012

  We almost purchased short sale recently but canceled. I would only recommend a short sale if the bank already approved it. The seller (in our case) accepted our offer and submitted to his bank, the bank took almost 2 months to get back to us and counter-offered which we decided to not accept. The bank ultimately decides if they accept, not the seller. Most short sale houses are listed cheap but once the bank looks at offer, they can approve or request higher amount....we had already done inspection so we were out that money. From the time seller accepted our offer to inspection, waiting on his bank to review/approve, it was almost 3 months. If we had accepted their counter-offer, it would have been 3 weeks or so to close. 

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• toptieragent

  October 2012

  As others said it definitely required patience and you are at the mercy of a bank.  One tip is to only look at short sales that are listed by agents who specialize in it.  If a short sale listing has been on the market for more than 60 days run in the other direction.  The listing agent is the hero in a short sale and if they haven't closed 10+ short sales it's probably a waste of time.  Good luck!

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