How to Buy a “Short Sale” House

A short sale in real estate terms is when a borrower sells their mortgage for an under appreciated value because the home is worth less than what is owed on the mortgage. In this event, the lender agrees to allow the home to be sold for less than the amount owed on the debt. But like a loan modification, a homeowner must prove that they have gone through a hardship that has gotten them to the point that they are at with the short sale.
Like almost every real estate transaction, a short sale will require the seller to submit all of their financial information to the lender so they may determine if they are eligible for a short sale. Eligibility is a key importance with this topic, as the bank is more than likely enduring a huge loss. If the bank determines the seller not to be eligible, or they cannot demonstrate a financial hardship, this can prevent you from obtaining the property.
It is important to keep in mind that the servicer will be in control of the property at all times during this process. Be prepared for a long closing process as it can easily take 3-6 months or more to complete after your offer’s been submitted. This is a key factor to consider when looking for a short sale home to buy. The realtor on the transaction (or yourself) are required to submit a written purchase agreements with estimated closing costs (estimated HUD) to the mortgage servicer.
If you’re looking to buy a home that’s currently being listed as a short sale, right now might be one of the better times to shop around. In today’s markets, with interest rate at record lows and home values significantly lower than they were three years ago, right now may be the time to take the chance while you still can afford it yourself.
Steps on how to buy a short sale home:
* First find a licensed realtor(try looking for one that specializes in short sales, as many realtors have specific specialties)
* You need to get your own mortgage yourself, so try and get a pre-approval from a lender you want to work with
* Find a home that is undergoing a short sale (try and find a short sale that is being sold by the seller)
* Once you find out the price make an offer. (You’ll most likely have to stick with the appraised value of the home, because the bank is in charge and they’re already taking a huge loss with the current appraised value of the home)
* If your offer is rejected move on to another home, unless you do not mind going a little higher
* Once the seller has accepted your offer, you’ll send it to the lender for an acceptance
* Send the lender a copy of your earnest money deposit as well (You might be required to increase the offer a bit, which in the end will be up to you to go through)
* Your pre-approval letter will help you with the lender. You’ll be required to send the letter to the lender. This will aid you if your agent sends a list of comparable sales that help the price you are putting up
* Remember to give the lender time to respond
The significance of a realtor:

There is no requirement that says a seller or buyer must use a realtor to buy or sell a home. However, real estate agents are professionals that can assist in making the process easier, and could help you to gain some edge in the deal. This is why a buyer would want to find a realtor who specializes in short sales, and why you would want to find a short sale home that’s being sold by the seller, so you’d hold some advantage with a real estate agent. Keep in mind that the lender is in charge of the sale the entire time though which could work to your advantage of getting a good home at a cheap price.

Understanding Short Sale Commissions:
In spite of  the commission the seller has to pay, the lender is really the entity paying the commission. The reason being because the seller isn’t getting any money from the transaction to  make that payment. Since the lender is actually losing money, the lender will possibly negotiate the commission directly with the listing broker, who’ll then divide the commission with your agent.
If you have signed a buyer’s broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.

Tips and warnings:
* With FHA mortgage loans and short sales, the seller’s lender will want a copy of your property inspection and appraisal to guarantee the seller will be giving them the greatest price they can get for the property. This may need to be done before the sale get’s done, and processed.
* Remember not to waste your time with offers you cannot afford, as lenders will not go lower in the case of a short sale, because the values already far to under appreciated
* If time is a factor, try to work with the lender as much as possible as they are in charge
* Keep in mind that the bank is legally liable to get the home at a fair market value(if it’s a nicer home)
* Keep in mind that short sales are not buy it or nothing deals
* Negotiating isn’t much of an option with short sales
Tips and warnings
* Banks will not respond to low offers
* Keep in mind that banks have tens if not hundreds of home cases they’re dealing with  day, and sometimes will not respond to emergency calls
* Do not hold your hopes on the home as in a short
* When dealing with a short sale, give it 2-3 weeks before trying to offer a higher price if it’s in your own cards. Try not to cave in though or even move on right away, as short sale cases take several months anyways to process.
* Remember to check your realtors background, get as much information on them as possible.

Check the Public Records:
Research is an important step when buying a home in a short sale. Public records will show all the properties recent history including:
* Who is on the title
* Whether or not a foreclosure notice has been filed
* And how much was previously owed to the lenders
Information like this will be important because it will help you determine how much to offer and whether or not the home will be auctioned off at foreclosure before the sale closes.. You do not want to waste months of your time on a property about to go to foreclosure.