Chicago Real Estate: 10 Things to Know Before Buying a Short Sale | January 31, 2012

Roughly 15-20% of the Chicago Real Estate Market would be classified as a short sale.  This is when a home owner owes more than what their home is worth, (usually behind on payments ) and is asking their bank permission from their bank to pay less than what is owed on the mortgage.  According to MLS data from Oct. 2011 short sales sold for 77.3% of market value where as traditional sales and Bank Foreclosures sold for 92.1% & 88.6% respectively.   So how does the average home buyer go about taking advantage of this deep discount.

1. Be patient!  Short sale can take as little as 60-120 days but in some cases up to 6 months.  It’s a complicated process and moves      slowly because most banks are understaffed in this department or experience high turnover.

2.  No short sale is ever the same.  Find out what bank owns the loan and if there is a 2nd loan on the home as well.  Some banks are easier and faster to deal with than others.

3.  If the price of a home is too good to be true than it probably is.  Ask how the listing Realtor determined the listing price.  Is it based upon market value? Did the bank determine the asking price ?  Or was it a negotiated price of a previous offer?  Did the agent just make it up?

4.  Be sure to find out how much the seller owes on their loan(s).  The less they are shorting their bank the more likely the sale will be approved.  If they are asking 150k and their loans are 400k chances are it will be difficult to prove the drastic loss.

5.  Ask if the listing agent has previous short sale experience.  This is critical.  An experienced agent will have all the documentation necessary to submit a complete short sale package to the bank for approval.  Incomplete packages are the number 1 reason for delays.

6.  Has a BPO been completed or ordered?  This is the 1st milestone in the short sale process.  The bank will order a BPO or broker price opinion after receiving the short sale package.  This is done by a 3rd party and helps a national bank determine home values in a specific neighborhood.  Some times this valuation will come back higher than the offer price or even the listing price.

7.  Another key question to ask “have there been any previous offers?”  Often times if a previous offer fell short critical information was learned like issues during the home inspection, problems financing the home because of repairs needed, acceptable sale price for the bank or just how quickly did the bank respond.

8.  Make sure the seller is cooperative.  A short sale seller is going to be dealing with a hardship like loss of job, income reduction or insolvency.  As a buyer you want to know they are engaged in the process and not in denial or stalling for time.  You will know this if they make the home available for showings, timely completion of contract, and short sale package submission.

9.  Be sure to ask for regular updates.  Usually every 1-2 weeks events will take place as a sign the short sale process is moving along and the listing Realtor is actively following up with bank.

10.  Be ready to close.  Make sure you have an approval letter submitted with your offer and your loan ready to close before the banks final acceptance.  This will greatly speed up the process on the back end by not waiting 30 days for loan processing.

When choosing a Realtor to help in your purchase make sure they are experienced and comfortable with short sales other wise you could miss out on 20% of the homes and some of the best deals.

Jeff Donnellan Re/MAX

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