How to Make a Short Sale Offer

A sold sticker on a for sale sign in front of a house

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Making a purchase offer on a home is always an art, but making one on a short sale listing is especially tricky. From what you should do (have plenty of patience) to what you shouldn't (demand extensive repairs), these tips can ensure that your short sale offer goes a long way in getting the seller's and lender's approval.

Offer a Strong Earnest Money Deposit

Many first-time homebuyers put down an earnest money deposit of $1,000, but an amount between 1 percent and 3 percent of the sales price speaks volumes. It says the buyer is serious. As a yardstick, the minimum down payment (which includes the earnest money) for FHA loans is 3.5 percent of the purchase price.

Agree to Put Your Deposit Into a Trust Account

Some real estate contracts call for the earnest money deposit to be placed into a trust account upon short sale approval. Sellers like to see that buyers accept this condition because it indicates another degree of commitment.

Check the Comparable Sales

Some short sale listings are deliberately priced way under market value to attract eager buyers, but it doesn't mean the home will sell at that price. The homeowner may be just fishing. Or there's no way the lender will take that much of a loss. Generally, banks approve a short sale that's roughly between 5 percent and 10 percent under market.

Ask About Competing Offers

Get the listing agent to level with you about the interest in the property. If it has already received a number of offers, your bid may need to be priced much higher than the list price. If the seller has already accepted an offer and sent that offer to the bank, you may be wasting your time trying to buy that home.

Don't Ask for Special Reports or Repairs

Any inspection you ask the seller to pay for will lower the bank's bottom line on the HUD-1. The lowest offers are rarely accepted. Do not ask for seller-paid pest inspections, roof certifications, or home warranty plans. Even if you see a need for major repairs, don't try to negotiate them. Resign yourself to buying the home in as-is condition.

Give the Bank Some Time

Although you might have news within three to four weeks, many banks take at least six to eight weeks, and sometimes even longer, to approve or reject short sales. Don't even think about asking for approval in a month; your offer may get chucked. Give it a maximum of 120 days and be prepared to act immediately if approval arrives earlier.

Assure the Seller You'll Wait

The biggest problem that short sale listing agents and their sellers face is buyers who walk away—daunted by the bank-approval process, or for more unscrupulous reasons. Some buyers write offers on dozens of homes, hoping to take the first offer that sticks, which is generally against the law (unless the buyer really wants and can afford to buy all those homes). Demonstrate your good faith by reiterating to the homeowner you're willing to hang in there while the lender decides and not continue to house hunt.

Agree to Pay the Seller's Fees

If there are certain closing costs that the seller typically pays, in a short sale situation, the seller's bank will most likely cover them. However, if you agree to pay part of those fees, it'll win you kudos: Doing so will net the bank more money and could well tilt things in your favor, even if the bank receives an offer identical to yours.

Provide a Strong Preapproval Letter

Little stands out among a sea of offers than a lender preapproval letter, a conditional commitment to give the buyer a mortgage of a certain size. A big question on the short sale seller's mind is whether the buyer is financially capable of closing the transaction. Having a statement in writing pretty effectively indicates that your money is where your mouth is.

Shorten Your Inspection Period

Standard purchase contracts give the buyer a certain time period in which to conduct inspections. That means the home is basically off the market while the buyer does due diligence, and the sale is not considered solid until that contingency period has been removed. Whatever is the norm in your state, if you can promise to do your home inspections in a snappier amount of time—within a period of 10 to 14 days—your offer will hold greater appeal.

Short sale situations come with a lot of complications: The seller is having to accept a price that won't cover all his costs; the bank or mortgage company has to approve the bid. Being generous with your time, money, and requests can do a lot to seal the deal.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.