What Does An Approved Short Sale Mean?
Question: What Does An Approved Short Sale Mean?
A reader asks: "When I look at homes on Realtor.com, I see homes being advertised as an 'approved short sale.' Can you tell me why some of them say it is approved and others don't? Plus, when I call the agents to get more information, they tell me to offer more than the asking price, and I don't know why. If it's an approved short sale, why would the seller need more money?"
Another little quirk about short sales is the fact they are sometimes priced under the comparable sales. Some agents list them low purposely to attract multiple offers. Therefore, the offer a bank accepts might be much higher than the list price because sellers often pick the highest priced offer.
Here is a quick overview of the short sale process:
What is an Approved Short Sale?
Banks generally do not approve a short sale until the bank receives an offer from a buyer. So, the usual way a short sale can be approved is for a buyer to submit an offer and get that offer approved. This is how a typical short sale goes:
- Agent lists the short sale.
- Seller delivers lender's required documents to the agent.
- Buyer submits an offer subject to lender approval.
- Seller signs the buyer's offer.
- Listing agent sends the seller's package, the accepted offer and a HUD to the short sale bank.
- Buyer waits anxiously, maybe for months.
- Short sale approval letter is finally received by agent.
- Agent calls the buyer's agent to deliver the news.
- Buyer's agent informs listing agent that the buyer bought something else.
- Buyer cancels the transaction.
- Listing agent chokes the buyer's agent and puts the home back on the market as an approved short sale.
And that is typically how you get an approved short sale. At least you know that the seller qualified for the short sale and the sales price was approved, and those are two major components that make or break a short sale.
Sometimes, with the buyer canceling, it's a silver lining. The next approval process is likely to move a lot faster, and the uncertainty that can plague some buyers is removed.
After the Short Sale is Approved and the Buyer Cancels
The buyers don't always cancel the transaction upon receipt of the short sale approval letter. Often the buyer is still interested in buying the home but cancels for other reasons. Many real estate contracts bestow upon buyers certain rights of inspection and contract contingencies, which give the buyer the right to walk away. Here are other reasons a buyer may cancel an approved short sale:
- Home needs too many repairs and the bank won't pay for repairs.
- The appraisal came in low, perhaps due to HVCC, and the bank may refuse to approve a lower sales price.
- The buyer does not qualify for the loan and is unable to satisfy the lender's funding conditions.
Whether a New Buyer Can Close on the Approved Short Sale
If the approval letter is specific to a buyer, then the short sale listing agent may need to request a new short sale approval letter. Depending on the bank, requesting a new short sale approval letter could very well start the entire short sale process over from scratch.
To close on the existing approval letter, the following would need to take place:
- Terms of the new offer must match the offer that was approved and be submitted at the same approved sales price.
- Approval letter must not be specific to the previous buyer.
- The buyer must close by the date specified in the short sale approval letter or an extension may be required.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.