Our short sale saga is winding down. Now that I can relax, relate and release; it’s time to pen the pros and cons of this experience. In an earlier post on the Point of Points, I explain exactly why the short sale option was considered. Now, let’s talk how.
There is one glaring lesson from this experience. BE PATIENT! Who knows why approvals, correspondence, and information took soooooooooo much time. Deadlines continually passed and required renewal. If time is of the essence, a short sale may not be your friend. We submitted an offer in September and plan to close toward the end of February. Compared to traditional home purchases or even auction deals, the short sale process lasted a great deal longer.
Short sales become available when homeowners need to cut ties with a property. The seller will work with their lender to offer the property for less than the current balance of their loan. Basically, the bank agrees to accept less than what’s owed to satisfy the loan commitment. Buyers can find real estate for a bargain price. Short sales should be considered as an alternative to foreclosure for homeowners that experience financial difficulties.
Structurally, the unit is in good condition. The townhouse is fairly new construction (for Chicago), built in 2000 with only one owner. However, because the sellers were experiencing a financial setback, there are a number of maintenance items left unaddressed. One must compare the short sale discount to the time and money required to complete maintenance projects. Since the punch list didn’t scare us away, we proceeded with the offer.
One delay in particular resulted from a request for condo documents. Unfortunately, the sellers weren’t able to pay the $300 reorder fee (why a collection of photocopied papers costs $300 is another mystery). After several weeks, we offered to pay for the documents. Another lesson…homeowners in financial distress may not be able to afford additional expenditures. It helped to be flexible in order to move the process along.
There had been a previous offer which dissolved due to delays confirming a clear title (i.e. the other guy got tired of waiting). However, the original short sale offer had been approved. We offered the same price with hopes the closing would be quicker. No dice. Their bank still had to review the same offer, for the exact same price that was originally acceptable. Did I mention patience was essential?
According to our realtor and lawyer, short sales can take as long as 2 years to complete. Also, don’t assume that a seller walks away empty handed in a short sale. The previous homeowners cashed out with $20,000 on this transaction. Mortgage holders can offer seller incentives. While the incentive may be much less than the appreciated equity one would expect to receive in a traditional home sale, $20,000 is much better than ZERO.
Finally, on the day we were to close, we found out that the sellers hadn’t moved out. They’d experienced yet another delay trying to move. This time due to weather. They offered to be out four days after the closing. I’m told this happens often. In traditional sales, you can charge rent or ask for compensation at closing. Because we’re dealing with people in an obvious financial bind, we preferred to close when the transaction could be completed. I didn’t expect to receive rent if they couldn’t pay a mortgage. Also, in Chicago, evicting someone (in the case that they didn’t leave) is a long, expensive process. We’d waited this long, a few more days wouldn’t hurt.
We closed last Friday. If you’ve had a short sale experience, I’d love to hear about it.