Real Estate Short Sales

Over the last week, I have received a number of real estate emails asking this question. And the answer is why short sales continue to be a less tapped part of the real estate market. The short sale process requires cooperation from the seller, the seller’s lender or lenders as there is often more than one, the listing agent, the selling agent and the buyer. Now, I’m sure you agree that getting that many people to work together is a daunting task in real estate. First, the seller has to gather a lot of financial documentation to be submitted to their lender. This includes tax returns, bank statements, W2s, a worksheet that demonstrates their current financial picture and a hardship letter explaining why they are in their current situation. They also have to sign a document allowing their lender to speak to their listing agent, or whoever the listing agent is using to manage the process. Add to this all the forms the seller has to sign to list their property and you can see how this step alone can be rather overwhelming. Some lenders may consider all this information prior to receiving an offer and pre-approve a short sale, however most lenders just treat this property as a preforeclosure until it receives an offer and will just set aside all this information as an incomplete package. If some of the information is missing, without a good explanation, the lender will also just put this package on the bottom of the pile, or worse may trash it until a complete package comes in. Once an offer has been received, it usually has to be submitted with all the financial information again, and then goes into the pile waiting to be assigned to a negotiator. This is the longest part of the process. Each lender has a certain number of negotiators who may be managing 5-10 files per city or county or area depending on how the lender divides it up. If they are getting files from 20-50 areas, the negotiator could easily be juggling 250 files or more. How many complicated files that has at least 100 pages each could you get through in one day? So waiting for a negotiator to be assigned can be as short as 14 days to as long as 180 days or sometimes more, depending on the lender and their process. Once a negotiator has been assigned, they review the file, order a BPO or broker’s price opinion (an opinion of market value or what the property should sell for) and then decide whether the offered price is acceptable or should be countered or rejected. This process can take a few days to a few weeks. After an agreed upon price is reached, counters and addendums are signed, as long as the buyers financing is all set, you can usually close within 30-45 days or sooner if it’s a cash offer. Wow! I’m exhausted just thinking about it. Of course, if there is more than one lender, you can see how this could get even more complicated. And if you have a lender who is trying to play hardball or won’t cooperate, the listing agent may need to have the skills to go over that negotiator’s head to get the deal approved. On the flip side, if this real estate property had already had all this process completed only to have the buyer walk away because they got tired of waiting, the process could happen in a very short period of time, say 45 days, or the typical length of time that a normal escrow is currently taking. So how long does a short sale take? It can take 45 days or it can be over 6 months. (I actually did one in 8 days – I think a world record). Wells Fargo has stated that they have revamped their short sale process and expect it to take 30 days or less. Other lenders and loan servicers are also trying to tune their process to make things go much smoother. My advice is don’t count out a property just because it’s a short sale. But be prepared to hang in for a few months. Chances are its going to require patience on everyone’s part in this real estate market. To read and learn more about short sales and more real estate topics please visit us at ourr Daily Updated Real Estate Blog