Follow these strategies to navigate the short-sale process and score an excellent deal.
Sometime last year, I decided I wanted to get in on that sweet, sweet respect that comes only from homeownership. There was only one problem: I live in Portland, OR.
The city is affordable on paper, but everyone with a stable income is trying to buy a house. Sprinkle in an urban growth boundary and a healthy heaping of Californians ditching the Golden State to complain about rain for nine months, and you’ve got a highly competitive market.
People may as well show up to open houses with briefcases full of cash handcuffed to their wrists. Meanwhile, I’m the type of dude who likes to think about spending hundreds of thousands of dollars for, like, at least five minutes before I do so.
My real estate team was on point; I was the bottleneck. I was indecision supreme, and by the time I did decide, there were always plenty of offers ahead of me.
Which is when we started looking at short sales.
A short sale is when a house is sold for less than the owner owes — the last step before foreclosure. Often, there’s more than one bank with a stake in the home. When you make the offer, and if the seller accepts it, then the banks all have to accept, knowing they will not make their full investment back.
It’s a variable-rich process and it usually doesn’t work out. But the upside is that you compete with fewer buyers, so there’s less urgency and you might get a nice price.
Sounds confusing or perhaps impossible? Don’t worry, I went through the process and came out the other side alive and with a cool house. I got your back.
These seven tips will unlock short-sale success beyond your wildest dreams.
1. Brace for a wild ride
Imagine that every bank is like the bank in the Harry Potter novels — operated by goblins with a dragon and an actual roller coaster in the back.
Your offer could get stabbed with a basilisk fang, or just sit on a manager’s desk in perpetuity; better to assume the bank will reject it. Assume you will never hear anything ever again.
Don’t start mentally moving in. Keep looking at other houses. When your offer does get accepted, you will be pleasantly surprised.
2. Get busy waiting
It takes somewhere between a few months and the entirety of existence for a short sale to be either rejected or accepted. Real money is on the line, and all stakeholders need time to do their due diligence.
Get used to uncertainty and waiting. Don’t call your agent every three hours asking if she has news. (Actually, don’t do that to anyone.)
You’re playing the long game, so just take it easy — sometimes for more than a year. You should continue to look at other houses. You can always pull your offer and with no hurt feelings. Remember, it’s not binding until it is.
3. Get busy being busy
Be ready to get your act together quickly if your offer is accepted by everyone.
For me, Bank One accepted with a letter that was good until a certain date. It seemed like plenty of time, but Bank Two dragged its feet something fierce. When Bank Two did accept the offer, I had only a short window of time to get the house inspected, liquefy assets, and move money around for a down payment in time to close before Bank One’s letter of acceptance expired. It was bananas.
I strongly considered walking away several times, but I’m glad I didn’t. Be ready to feel overwhelmed when things get really real.
4. Be ready to work (or spend money)
It’s very clear that at some point the previous owner knew he wasn’t going to get any money out of the sale and put both of his middle fingers up to even basic maintenance. He allowed his pet to let loose on the carpet. I found a TV and a weight bench in the bushes behind the house … and then the bushes turned out to be old Christmas trees.
Neglect is unfortunately common in short sales, and chances are better than great that the seller will never pay for any pending repairs. Expect to have to put work or money into your short sale.
5. Set your sights low to set your sights high
My house was and will be an aesthete’s wonderland: a beautiful midcentury modern home with high ceilings, giant windows, and an open layout in a neighborhood I love.
If it were in better shape when I bought it, it would have been out of my price range. Look past the surface stuff (but don’t ignore it) and maybe plan to live on foraged berries for a few years while you renovate.
6. Think about selling it
Even if you want to live in your house for a long time, it’s an excellent idea to think every once in a while about selling it. Because the price you paid for your short-sale home was probably depressed in more than one way, the value can escalate quicker than you expect and perhaps you will want to parlay that into something else.
Cue Web banner ad copy: I added tens of thousands of dollars in perceived value over the first few days of living at my home — just by cleaning up.
Depending on your lender, there may be rules about how soon you can sell your short-sale home; in my case they were not particularly restrictive. You certainly don’t have to sell, but it’s worth knowing your options.
Even if I live in my house until I die, I will continue to haunt it afterward as a surprisingly pragmatic ghost that is curious about real estate prices in the neighborhood. (I’ll do some spooking and haunting too, don’t worry.)
7. Get ready to explain short sales to everyone you know
For real: a short sale is not only confusing, it is also confusingly named. Figure out your two-sentence explanation because everyone will want to know.
Now you know what you need to know. Go forth and look at houses on short sale. Sellers will swoon at your savvy. Other buyers will cower in your presence.
And you will end up with a house you love.