In an earlier article I gave an overview of the foreclosure and short sale process. Here are some additional tips:
Make a realistic offer
If you are watching the guys on the late night infomercials they are telling you that banks are desperate to shed themselves of properties acquired through foreclosures. While banks are not in the business of real estate sales, they are not giving properties away. Banks typically take a huge loss when they acquire a home via foreclosure and their goal is to hold the property for as short a time as possible, while maximizing the sale price. Banks have to report to their board of directors and other investors.
A seasoned real estate agent should be able to give you the best idea of a good initial offer. While the real estate agent works on a commission and a higher price means a bigger commission, real estate agents know that buying a foreclosure can be a lengthy process and they would rather have you make a strong first offer than make a weak offer, then wait weeks or months to learn that the offer was rejected. A weak offer may indicate to the bank that you are not a serious buyer or are just fishing for bargains. They may simply hold on to your offer while they wait to get a better one.
If you are attempting to buy a short sale property the same rules apply. Don’t waste everyone’s time by making an offer significantly below market value. Making a strong offer up front lets the bank know you are serious. A bank is more likely to approve a short sale that is close to market value. Keep in mind that the seller likely owes significantly more than market value so the bank is trying to get the most that it can for this property.
Cash is king
If you are in the fortunate position of being able to offer cash for a property with a close in 30 days, you can take your chances with a lower offer, especially if the property is bank owned. Banks respond much more quickly to cash offers. If you are buying a short sale the same rules apply as above.
The biggest source of frustration for someone buying a short sale or bank owned home is the time line. Banks respond when they want to, and they don’t really care about your rate lock, or your lease being up in two months, or your need to get into a new school district before school starts. If your plans are not flexible, buying a bank owned home or a short sale is probably not for you.
Even if everything progresses smoothly to closing, things can fall apart at the last minute, especially with short sales. The bank may decide that they are not going to forgive the debt and the seller calls off the sale, or the bank may ask the seller to bring cash to the table because they’ve discovered that the seller has resources, or there may be more than one lien on the property and the seller may not be able to get the second lien holder to strike a deal.
Have a good attorney who knows foreclosures and short sales
Your offer will be made through your real estate agent. Your attorney likely will not become involved until after the contract is fully executed. You should contact an attorney right away to begin your representation. Many times the acceptance of the contract will come with a rider. This is a counter offer that does not have to be accepted by the buyer. The seller may put certain contingencies in the contract, like in the case of a short sale, the acceptance is contingent on the bank agreeing to the price and waiving any deficiencies. Assuming there is a good offer and acceptance, you inspect the property and the report comes back clean, and you want to move forward, there are still issues that can derail a short sale, like liens and other encumbrances on the title. If you buy a bank owned home the foreclosure process will have killed all the other liens. If you are buying a short sale you take the property subject to any existing liens.
If you are thinking of buying a short sale of bank owned property contact Chicago area attorney Rhonda Stuart.