Saw a great post this morning regarding backup offers that prompted me to discuss this with you.
If you are a buyer overlooking short sales and thinking they are a waste of your time, you just might be missing out on the home of your dreams. Heres why…
The time it is taking now for most buyers to find a home, get an accepted offer, and complete escrow can run anywhere 3 to 9 months, no exaggerration. Over the past few years, short sales have gone from taking 6 to 9 months to complete, down to 3 to 6 months to complete. Some lenders such as Wachovia (7 to 10 days to approval) and Wells Fargo recent process turn-around (30 days to approval) are taking even LESS time! This trend shows the lenders are approving faster. So, where is the problem? Buyer fallout!!!!
Being in backup position on a short sale (of a home you REALLY desire) is second best to being the offer in play. Why, because the current fallout rate of short sales is about 50/50. Try as we might with our own processes to filter out problem buyers and to accept the strongest offer (the one that has the highest probability of closing), something else just might come up.
“What might come up” you ask? Well, in this economy, the most popular and unfortunate reason I notice for buyer fallout is job loss. This, of course is no fault of the buyer, but is probably one of the biggest reasons for a property becoming available again.
Then, there’s that little hinderance of last minute liens that get filed and show up after title runs a prelim check. Most of the time these liens amount to thousands of dollars and the sellers cannot afford to pay them so, in order to clear title and close escrow, the responsibility of payment of the lien can fall on other parties in the transaction.
And then there is the lender who’s guidelines change mid-transaction. That’s always fun. This is occurring more often as the election year draws near, the economy hangs in the balance, and lenders make valiant attempts to make loans affordable and available without the risk of another fallout. So constant “tweaking” of their lending guidelines are occuring to ensure future fallout does not occur. This guideline is immediately imposed on the buyer in escrow, without warning. If that once pre-approved buyer is unable to meet or comply with that new guideline, the deal goes south.
Those are just a couple of examples of uncontrollables that lead to short sale properties becoming available once again.
So, the good news? Many short sale lenders are now allowing transactions to pick right up where they left off without having to start the entire short sale process over. This means that the new qualified buyer (from a backup offer position) does not have to double up on wait time, and it is likely that the acceptable terms of the sale have been outlined by the investor and can be provided to complete the sale.
How do I deal with backups on my short sale listings? Buyers who are in backup position on any of my short sale listings, have no preferential treatment or specific “place” of order in the backup offer process. The reason for this is that if a deal falls out, I simply go to my backup offer stash, contact all agents with backup offers, explain to them the current terms of the short sale, and ask them two things; 1) Is your buyer is still interested? 2) These are the terms for approval we are accepting best and highest so would your buyer like to remain with the terms of their original offer, or would they like to change the terms of their offer?
This seems to works best for me so I can give a fair opportunity to all interested parties at that time. Further, the terms of the approval are usually more defined by that time and even the original backups may have information about their approval or what they are willing to offer that may have changed by then.
Fear no longer the property that has been on the market for 197 days. If it is priced right, there is probably a justifiable reason that it is now available again and may turn out to be a great opportunity in disguise for the patiently waiting backup offer.
So, if you find a home that you feel you simply must have and it is “Short Sale Cont”, I say go for it! Make sure your financials stay on track (no “big spending or purchases”), make sure your loan is solid, stay current on your lending terms, and be the best backup offer you can be 🙂
Happy House Hunting!!