As many distressed homeowners await relief from the White House’s loan modification and refinancing program, a growing number of distressed homeowners are considering a short sale — or a deal in which the homeowner sells a home for less than the value of the mortgage, with the blessing of his/her lender. Short sales can be good for both buyers and sellers, but there are a few things both parties should be aware of before taking the leap.
BlackEnterprise.com talked with Kevin Riles, real estate broker and author of 40 Acres & a Mule: The African American Guide to Building Wealth Through Real Estate (Kevin Riles; $15.95) and David Wood, managing partner at Conyers, Georgia-based Wood & Wood L.L.P., about key things to know, no matter what side of the deal you’re on:
Tips for Buyers
Be patient. Short sales can take at least 90 days to close. “So if you are in a hurry to close and move into your home, don’t purchase a short sale,” Riles says. Wood urges patience as well, adding that oftentimes a buyer will be getting the property for a great price as a result.
Be pre-approved, not pre-qualified. “Pre-approval means your file has been reviewed by an underwriter and all credit conditions have been met,” Riles says. “You need this so that when the short sale is approved, you are ready to move fast.”
Work with an experienced buyers’ agent. Because a short sale can involve quite a few intricacies, you don’t want this to be an agent’s first short sale.
Lack of communication from the seller or sellers’ agent should raise an eyebrow. “This probably means they have not heard anything themselves,” Riles says. “You must be in constant contact with the seller.”
Be prepared for last-minute changes at closing. “Usually the closing attorney is seeking approvals from the seller’s lender, the buyer’s lender, and of course the parties in the deal,” says Wood. “With so many people to appease, oftentimes the figures will change frequently as you approach closing.”
The terms of the contract may be restricted by the seller’s lender. “[For instance], the seller’s lender may only wish to allow the seller to pay a certain sum of the closing costs, while the seller and buyer may have negotiated [a deal] where the seller would pay more of the closing costs,” says Wood. “Ultimately, the seller’s lender will trump the terms of the agreement.”