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.
Key Takeaways
- 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.
Note
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.
FAQs
If it's below value, that is generally acceptable. Just not excessively below. Think of your offer as being “within shot.” For example, a Seller that has an FHA loan trying to get short sale approved, a common number the bank is willing to approve is a minimum “net” 88% of the bank's appraisal price.
Why would a bank approve a short sale? ›
The seller needs to show some sort of hardship. If they can prove that they can't keep making mortgage payments and will eventually default, the lender is more likely to agree, especially if the lender doesn't want to go through the foreclosure process and then sell the home on its own.
What is the downside of a short sale on a home? ›
The short sale is often preferable to a foreclosure, but it is not a resolution to all a homeowner's financial woes. Aside from potential tax liability and credit implications, if the homeowner is expected to pay the difference between the sale price and the mortgage, that can compound the financial difficulty.
How to write a short sale offer? ›
How to Make a Short Sale Offer
- Offer a Strong Earnest Money Deposit.
- Check the Comparable Sales.
- Don't Ask for Special Reports or Repairs.
- Give the Bank Some Time.
- Assure the Seller You'll Wait.
- Offer to Pay the Seller's Fees.
- Shorten Your Inspection Period.
- Provide a Strong Preapproval Letter.
Banks are businesses and, just like any business, they are seeking to earn a profit. If it costs more to foreclose over agreeing to a short sale, the bank is very likely to favor the short sale. With foreclosure, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.
Can you lowball a short sale? ›
When you find a short sale home you'd like to purchase, it's best to make an offer quickly – but don't lowball it. Although a short sale often means a lower purchase price, the mortgage lender wants to recover as much money as possible. Therefore, the seller is more likely to accept a competitive offer.
Can a bank come after you after a short sale? ›
Although the lender might agree to release its mortgage lien in exchange for the short sale proceeds, it might not release you from personal liability on the debt. So, if state law allows it, the lender could potentially come after you for the deficiency.
Who benefits from a short sale? ›
Short sales allow a homeowner to dispose of a property that is losing value. Although they do not recoup the costs of their mortgage, a short sale allows a buyer to escape foreclosure, which can be much more damaging to their credit score.
What happens after a short sale is approved by the bank? ›
Once a lender approves a short sale, a seller is in charge of selling the property. However, the lender is responsible for the negotiations and determines whether to accept or reject buyers' offers – as it is the lender who is trying to recoup costs.
Does the seller make money on a short sale? ›
For a short sale to happen, both the lender and the homeowner have to be willing to sell the house at a loss. The homeowner will make no profit, and the lender will actually lose money for selling the house for less than the amount owed.
Short sale homes are notorious for being neglected, so they tend to have more severe issues than other real estate properties. While sellers are required to disclose information about the property, they could leave out or manipulate details to make the short sale more attractive to potential buyers.
What is the short seller rule? ›
3 Rule 3b-3 under the Exchange Act, 17 CFR 240.3b-3, defines a short sale as "any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller." Pursuant to Rule 3b-3, a seller of an equity security subject to Rule 10a-1 ...
What's a good strategy for a buyer making an offer on a short sale? ›
Make Your First Offer Your Best Offer
While a short sale home can be a good deal, avoid coming in too low with your offer. The lender is trying to recoup as much of the remaining mortgage balance as possible, so your offer should match or be close to market value if you want it to be accepted.
What is a simple example of a short sale? ›
Here's an example: You borrow 10 shares of a company (or an ETF or REIT), then immediately sell them on the stock market for $10 each, generating $100. If the price drops to $5 per share, you could use your $100 to buy back all 10 shares for only $50, then return the shares to the broker.
Who must be involved in the negotiation of a short sale? ›
Short Sale Negotiators represent the seller and negotiate on their behalf with the lender / bank. Often short sale negotiators are hired by investors, who need to negotiate the payoff down to a level that they intend to purchase the property for.
Can I offer 10% less than asking price? ›
If the home is in good condition and could use a few cosmetic updates, offering less than 10% below the asking price may make sense.
What percentage is a reasonable offer? ›
If this is The One, then you will want to make a house offer that is at least near the asking price — perhaps within 5 percent to 10 percent. For most sellers, coming in close to what they want to get and what the market bears for that particular home is considered a good offer.
How much of an offer is too low? ›
“The rule I've always followed is to never go more than 25% below the listed price,” he says. “Chances are, after fees, commission, and sentimental value, the sellers are already hurting. If you dip below that point, they may disregard your offer entirely.”
