What Is Short Sale Approval? A Guide to How Long to Wait for a Short Sale
You’re in the market for a new home, whether for yourself or flipping purposes. While browsing local listings, you find one well below market value and your eyes blink twice, making sure your mind isn’t playing tricks on you.
Before you swarm that apparent steal of a home, you need to consider whether or not it is a short sale property. If it is, then you need to be careful about your time frame.
How long do you have to wait before closing on the house? If you have some time to spare, it just might be worth the wait!
Today, we’ll take a closer look at how long it takes to get a short sale approval on a home.
What is a Short Sale?
First up, let’s make sure we’re all on the same page about what a short sale home is.
Sometimes, people have trouble making mortgage payments. Maybe life circumstances changed for them or maybe they didn’t read all the fine print and agreed to some unfavorable terms.
Regardless of the reasons, it can become difficult and stressful wondering if someone if someone is going to show up at your doorstep. Avoiding countless voicemails and e-mails can become tiresome, too. In the end, these people often look for easy ways out, which might come in the form of a short sale.
A short sale is when the lender (usually a bank) agrees to sell the home for less than what a person currently owes on it, forgiving the difference. Banks often favor short sales over foreclosure, because foreclosures can be long, difficult, and cost more money in the long run.
Plus, the homeowner is able to walk away debt-free, and you get a home for under market value. It’s a win-win-win for everyone.
These types of sales were especially common around 2010 during the mortgage crisis. To this day, they still happen fairly often.
How Long Until You Get a Short Sale Approval?
You may not want to hear this, but the answer is, “It depends.”
As a motivated buyer, that can be a tough pill to swallow. Maybe this home is for yourself and you need to move in right away. Maybe you’re planning to renovate to boost profits by flipping the home, and you can’t wait any longer.
Either way, the ambiguous nature of the short sale approval process and its timeline can really throw a wrench in your plans.
The Short Sale Process
First, you need to see the process from beginning to end to get a good idea of why certain aspects might take longer than others. In general, the steps are:
- Seller contacts bank and applies for the short sale program
- Seller is approved and is sent terms of the short sale
- Seller finds a qualified real estate agent who specializes in short sales
- Home is listed, usually for under market value (also after the home value is estimated)
- Buyer submits an offer to the bank
- Bank either approves or counteroffers
- If approved, bank submits approval letter to the agent
As you can see there are a lot of moving parts, and any one of them could potentially hold up another.
The Short Sale Timeline
Again, it’s difficult to give anyone exact numbers on this because it varies on a case-by-case basis.
In general, though, you can expect to wait up to a couple of weeks to receive confirmation that your offer was submitted. After that, a bank will need to get an estimation of the house value.
This can usually take up to a month, although it can take up to another month to review the estimation itself. From there, negotiations take place, which is often outsourced and can take another month to two months.
Finally, it can still take up to two months or more for the bank to officially approve the short sale.
All in all, this process can easily last six months, but it depends on many factors, including:
- The lender
- The real estate agent
- The negotiator
- You
Everyone plays a role in the timeframe, and if someone is not on the ball, it can make the whole short sale approval process lag. For example, the lender who you are making offers to may be understaffed.
It could be as simple as someone not having enough people to handle the number of sales they are working with. That being said, you as the buyer are an important part of the process and you can do your own part to move things along.
What a Buyer Can Do
If time isn’t in your favor, and you need to move the short sale approval process along, you should do everything you can to help. For one, your offer is a big factor.
A lot of times, what holds up a short sale is when people make lowball offers.
It’s easy to look at a short sale as an easy way to get a house at a steal. But there are limits, and banks may take longer to respond when the original offer is so low.
Plus, sometimes, the counteroffer may be so much higher, that you’ll need to abandon ship anyway.
It’s important that you carefully discuss this sale with your real estate agent beforehand. Find one who specializes in short sales, because they will know the current local market and how to approach it.
Patience Pays Off
It can be very tempting to jump all over a short sale home that is listed well below market value. But timeframe is an important aspect to consider, especially if you don’t have a lot of time to spare.
While the short sale approval process can vary from one person to the next, it can easily take up to six months. Sometimes, the key to a quicker approval is to choose your real estate agent wisely, be wise about your offer, and know when to follow up.
If you’re interested in getting more info on real estate investment, check out some of these top places to invest in 2019!