why do short sales take so long to close
RISMEDIA, September 8, 2010 Real estate professionals know that a short sale transaction can take months for it to be approved and closed. The reality is that short sales usually take three to four times as much as a regular sale to finally get to the closing. From the time the Realtor actually gets the property under contract to the time the lender approves, it could take anywhere from 30 days to six months, depending on how fast the borrower provides critical information for lender and Investor approval. Even then, you still have one more variable to account for which is the buyer waiting for all this time to get the contract approved by the lender. For this, setting the expectations is a key factor in any short-sale transaction. Buyers who make an offer on a short-sale property need to know that lenders have to reverse underwrite a short-sale and make sure that they are allowing the sale to happen close to market value. I say reverse underwrite because instead of determining affordability, they will look for un-affordability. They will check the seller s financials to verify that they can t afford the house anymore and consequently, they will order a price opinion from a broker or certified appraiser, commonly known as BPO (Broker s Price Opinion) to make sure the house is being sold close to market value.
If the offer is too low compared to what is owed, it will make more financial sense to the Lender to just foreclose the property and re-sell it as an REO (Bank-Owned Property). All this will happen while the buyer is still waiting for a response so it is very important to set the expectations correctly from the beginning to avoid losing the buyer close to the end of the process. Seller s Expectations On the other hand, it is important to also educate the Seller and set the expectations with them from the beginning. They need to understand that the Lender takes its time responding, but when they do, they usually give a 72-hour timeframe to respond or provide the missing documentation. If the documentation is not provided within the specified timeframe, it usually ends up in a closed file and countless work-hours lost. Another common situation that is happening very often is borrowers being served with foreclosure paperwork from either the lender or homeowner s association while the short-sale is being processed. It is crucial to let them know that this might happen so that they are prepared for it and receive the documents knowing that they are in the best hands. Foreclosure and short-sale are parallel processes and one does not cancel the other. Sometimes a short-sale might delay a final sale date, but it will definitely not stop the Lender from starting the foreclosure proceedings.
Short sale success comes from educating not only the seller but also the buyer and everybody else involved in the transaction. Setting the right expectations is the most crucial part of a short sale. There are many hours involved in processing a short sale and the last thing you want is a seller or buyer walking away because the expectations were not set correctly.
It seems that the most common complaint today with short sales, is why does the bank take so long? This question is heard over and over and both sellers and buyers are anxiously asking it. Itвs the million-dollar question. But thereвs not one firm answer. Some short sales take 60 days. Some take 30. Some can turn around in 24 hours. Other lenders are so swamped with short sale submissions that its employees can't respond in timely manner. What once took two months can easily take four months. It really depends on the lender and what system they have in place to respond to short sales. To understand, the short sale process, from submission to the lender to the time of short sale approval, might go as follows: Submission of offer and complete short sale package from the seller. Bank acknowledges receipt -- 10 to 30 days. Bank orders a BPO or appraisal -- 30 to 60 days.
File is reviewed -- 30 to 60 days. Negotiator is assigned -- 30 to 60 days. Level II negotiator may be assigned -- 30 to 90 days. File is approved or rejected -- 30 to 120 days. If rejection or approval takes longer than 120 days, it's possible that a piece of the cog is not working. Perhaps the listing agent isnвt staying on top of calling the bank. Calling the bank can often mean waiting on hold anywhere from 10 minutes to an hour or longer. Or, a lengthy short sale period can also mean the bank has internal problems, not enough staff or has lost the file a few times, causing the listing agent to have to resend the package over and over. It can also mean that the appraisal is substantially higher than your offer, and the listing agent is building a case for a new appraiser. Unfortunately, you can't always avoid problems on a short sale. Patience is key в along with an experienced realtor and attorney. Threatening to walk away isnвt going to make an impact on the bank. If you truly want the home, stick it out. So, if this is something you, as a seller or buyer, are getting involved in в make sure youвre working with both a realtor and attorney who understand the short sale process. It will make a world of difference to have people who understand the process guiding you through it.
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