On-Target Short Sale Offers
Top 3 Tips to Submitting an On-Target Short Sale Offer
- Make sure your buyer is pre-qualified for the new loan. If the buyer is paying cash for the property, they must submit a proof of funds letter from their financial institution with the purchase contract.
- Submit an offer that is at or near the “as is” value of the property, or anywhere between 92-100% of the property value. Submitting offers lower than 92% of the “as-is” value could either extend the timeline of the transaction, resulting in months of added processing to approve the transaction or in the lender declining the offer because it is too low to consider.
- Once the BPO has been ordered and completed, have your buyer ready to complete the inspection and appraisal as quickly as possible. One thing you want to avoid in the short sale process is receiving an approval and not being able to close within the 30-45 day deadline set by the short sale lender. If you track the status of the buyer’s loan and do your due diligence during the time the file is being processed by the lender, it will save everyone time and extra efforts in the end.
Tips for Writing Short Sale Contracts
- Always ask the Listing Agent, up front, if the transaction will require a short sale approval from the lender.
- Explain to the buyer that any repairs will probably not be paid by the seller or lender as a part of the transaction. Short sales are sold "as-is" and short sale lenders typically will not pay for repairs or home warranties.
- The seller—the short sale lender—is concerned about the sales price offered on the property, but they are even more concerned about the buyer's ability to be ready to close quickly once an approval is issued.
- Make sure your offer is clean, includes a loan pre-qualification letter (or proof of funds letter for cash transactions), and keep make limited requests for seller-paid closing costs at a minimum.
- No contingent offers. The only contingency in the contract should state, “Contract must be contingent upon short sale approval.”
- Offers should not include contingencies. The only exception is to include the following statement in the purchase contract, "Contract is contingent upon short sale approval by the lender."
- You should always interview the listing agent, and, if the agent does not understand the short sale process, you should advise your buyer to look for a different property to purchase.
- Instead of writing an offer that states you will close within 30-45 days, state that the closing will occur within 30 days of the short sale approval, if all short sale and buyer loan requirements have been met, most short sale approvals are good for 30 days.
- If you do not want an open-ended contract, you can write the following statement in the Provisions section of your offer: “In the event a short sale approval has not been received within ___ days of acceptance, buyer has the right to terminate this contract and receive a refund of the good faith deposit.” The number of days you specify should not be less than 90 days, since the average, uncomplicated short sale approval takes approximately 60-90 days once the offer and complete short sale package have been submitted, and from the time of the approval to a closing usually takes 30 days.
- We do not recommend that your buyer starts spending money on the transaction without first receiving a written short sale approval. Appraisals, inspections, and other standard expenses should be taken care of after the short sale has been approved by the lender, but the buyer should be prepared to move forward quickly with these items as soon as the approval has been secured.
- Add the following wording to your contract: “Seller shall agree on one offer to present to the bank, and will not present any other back-up offers to the lender for approval until a decision has been made on the original offer presented, unless the offer submitted is withdrawn by the buyer.” This prevents listing agents and lenders from “cherry-picking” offers to send to the bank, regardless of when the offer was made.
- Having an experienced loan officer (LO) for the buyer is crucial to closing a short sale. More importantly, the LO must understand that the closing date is critical and an absolute. If it doesn’t close within the timeframe specified by the lender, the buyer may have to pay per diem charges for each day past the approved deadline, or, it may never close.
- If your state requires the direct participation of an attorney for the short sale process or closing, choose an experienced closing attorney. The seller will typically choose the closing agent in a short sale, so you should always verify with the listing agent that the closing attorney is experienced with short sale closings.
- Always have your buyer purchase buyer’s title insurance.
- If you discover the seller is an investor, immediately speak with the existing mortgage lender and your buyer’s LO to verify any requirement with the current mortgage lender or the new buyer lender that the buyer must own the property for a defined period of time, prior to selling it. For example, FHA has a 90-day requirement.