Simply put, the property is legally owned by a person or corporation and is often occupied by an owner or tenant or it could be vacant. However, the owner owes more on the property than what it is worth, therefore the bank or lender needs to approve the sale since the lender stands to lose money.

Paperwork / Rules for Offer Submission: A standard purchase and sale agreement is used along with an addendum acknowledging the fact that this is a short-sale transaction.

The asking price can be whatever the homeowner chooses since they still own the property. The seller might be pricing it low to encourage multiple offers, might have it high to try to recoup as much money as possible or it might be priced correctly. In most cases the lender has not approved a sale at the list price so a Buyer doesn’t know if his offer even at list price will be accepted. The buyer should perform their own market analysis and make an offer close to that. Submission of the market analysis to the listing broker at the time of offer may also be a good idea.

While it might be nice to have repairs made, the seller certainly doesn’t have the resources to make them and the lender is very unlikely to do so since they don’t own the property. So an “as-is” sale is the best and most likely to be successful. This makes trying to buy a short-sale property that needs repairs using conventional or FHA financing challenging at best and an exercise in futility at worst. This also contributes to the low success rate of completing a short-sale transaction.

Buyer should give a check to escrow after the offer is accepted. A Buyer can be flexible with this unlike a Bank REO situation. The Buyer should also supply proof of funds for down payment and pre-approval from the lender for any new loan to make your offer stronger.

 Closing can occur within 30 days but the 30 day clock will not start until the lender gives their approval – see below.

What is the time frame in this scenario? Initially this type of offer is handled like it would in a non-short-sale situation. The listing broker will present it to the seller but once they approve it, it will be forwarded on to the lender for their approval. At that point the listing broker has no control over the process and is in a wait and see mode like the Buyer.

This approval process may take one week or it may take up to three months. One thing to keep in mind is that while all parties are waiting for an approval of the offer another department of the lender/bank is working on the foreclosure and may actually foreclose on the property with offers in for approval.

If that happens, the deal is dead and the listing terminated as the former seller is no longer the owner of the property and does not have authority to sell. If that happens and the Buyer is still interested in purchasing the property work with your broker to follow-up on the property as it will come back to market with a different listing broker and usually a different listing price.

In addition to brokers, a short-sale negotiator may be involved who attempts to negotiate with lenders on behalf of the buyer and seller. By having experience working with lenders the hope is that they will be more successful than the inexperienced seller going it alone. It has proven to be somewhat effective but there is also a fee involved. It is a contingent fee that typically runs in the $2,000-$5,000 range and it is expected that the buyer pays this fee if they are successful. If the seller is using a negotiator it should be disclosed in the listing description so if you don’t see it, ask the question to avoid a surprise down the road. You really need patience.