Making a purchase offer on a home is always an art, but making one on a short sale listing is especially tricky. A short sale is when homeowners sell a home for less than what they owe on a mortgage. This means sellers are highly motivated since they want out of the home, but your offer must be approved by both the seller and the seller's lender.
From what you should do (have plenty of patience) to what you shouldn't (demand extensive repairs), these tips can help you put in a short sale offer that has a good chance of getting approved by both the seller and the lender.
- Make sure you check comparable sales and offer an attractive earnest money deposit.
- You'll need to be patient with the bank and be ready to buy the home as-is without asking for repairs.
- A preapproval letter and short inspection period can strengthen your position with the seller.
Offer a Strong Earnest Money Deposit
There's no set rule for how much money to submit with your purchase offer. Some homebuyers put down an earnest money deposit of $1,000, but an amount between 1% and 5% of the sales price speaks volumes. It says the buyer is serious.
Real estate contracts typically call for the earnest money deposit to be placed into a trust account. This protects both the buyer and the seller in the event the sale falls through.
Check the Comparable Sales
It can be tough to know how much to offer on a short sale. Some short-sale listings are deliberately priced way under market value to attract eager buyers, but that doesn't mean the home will sell at that price. The homeowner may just be fishing, and the lender may not take that much of a loss. A real estate agent experienced with short sales can help you decide how much to offer.
Don't Ask for Special Reports or Repairs
Any inspection you ask the seller to pay for will lower the lender's bottom line. The lowest offers are rarely accepted. Don't 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. You'll most likely need to buy the home in as-is condition.
Give the Bank Some Time
Although you might have news within three to four weeks, many lenders take at least six to eight weeks, sometimes even longer, to approve or reject short sales. Give the process two to three months 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. Buyers may be daunted by the bank approval process, or they may walk away for other reasons. For example, occasionally buyers write offers on multiple homes, hoping to take the first offer that sticks, which is risky and considered by some to be unethical.
Demonstrate your good faith by reiterating to the homeowner you're willing to hang in there while the lender decides and that you're not house hunting in the meantime.
Offer 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 lender 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 lender more money and could well tilt things in your favor, even if the lender receives an offer identical to yours.
Shorten Your Inspection Period
Standard purchase contracts give the buyer a specific time frame 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.
Don't skip getting the home inspected. Even though you're likely buying in as-is condition, it's best to know what the as-is condition actually is.
Provide a Strong Preapproval Letter
Little stands out more among a sea of offers than a lender preapproval letter, which is 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 effectively indicates that you have the financing in place to close the sale.
Short sale situations come with a lot of complications. Sellers have to accept a price that won't cover all their costs, and the lender has to approve the bid. Being generous with your time, money, and requests can do a lot to seal the deal.