When you’re looking for a new home, the process can feel endless in even the most efficient, straightforward of circumstances. Between searching for, viewing, negotiating, inspecting, and possibly renegotiating on a home, the road to the closing table is rarely a short one. And if the house you’ve landed on is listed as a short sale, you could be in for a long ride.
Though short sales aren’t as prevalent today as they were following the Great Recession, they’re not impossible to find, and good deals for buyers can still be had. To navigate the short sale process, you’ll need an experienced real estate agent and lots of patience.
Together with top agents Laura Sanders of Coral Springs, Florida, and Bob Wisdom of Elgin, Illinois, we’re exploring the question of how long a short sale takes and what buyers should know along the way.
What exactly is a short sale?
As a quick refresher; a short sale is when a homeowner has fallen behind on their mortgage payments and is approaching foreclosure. In a short sale, the homeowner owes more on the mortgage than the house is currently worth, and the bank has agreed to accept a lower price to satisfy the debt.
A short sale can help a seller avoid foreclosure, and — more importantly — short sales can offer real relief to a struggling homeowner.
These sales take time because the bank is an active third party in the process. It isn’t just a matter of a buyer and seller coming to an agreement between themselves with the help of their respective agents; the bank has to approve the price and conditions of the sale.
This means that the seller needs to prove adequate hardship to justify a short sale, while a buyer needs to be qualified to make the purchase and remain flexible on the terms of the deal.
Short sales are usually as-is sales, so inspections will generally be for your own reference rather than a tool for negotiating. And because there’s so much paperwork involved, and banks can take weeks (sometimes months) to process files, it’s essential that both sides stay vigilant with follow-ups.
Finding an experienced agent
Finding a great agent is key for almost any real estate purchase, but short sales are their own special kettle of fish. Agents who are familiar with the process will be the ones who have the patience and persistence that is often necessary to ensure a smooth transaction.
“The buyer’s agent isn’t the one who is negotiating the short sale with the bank,” explains Sanders. “The listing agent will hand over the paperwork, but the buyer’s agent needs to make sure that that agent continues to follow up.”
Having a tenacious agent in your corner who will regularly check in with the short sale listing agent to find out when they last spoke with the bank and to make sure they’re not missing any paperwork can prove to be an effective motivator in a sluggish deal.
“A short sale is anything but short,” cautions Sanders.
“It’s a long sale. Buyers get confused because they’re not explained the process; they think it’s going to be short. What it’s short of is the dollar amount owed.”
The good news is that finding an agent can be a very quick process; finding someone you like and trust can happen in just a day or two. But don’t be afraid to ask questions about their experience with short sales if you know you might be pursuing one of these homes — not all agents are willing to work on these deals.
Time needed: Two to three days
Getting preapproved to buy
Similar to finding a good agent, finding a lender and getting preapproved for a mortgage is an important step in buying a home. Being preapproved lends credibility to your purchase offer and speeds up the closing process.
Your first step here is to find a lender. Your agent can likely refer you to someone, or you can talk with your existing bank or credit union. There are also countless online lending options (as a quick Google search will reveal), and it doesn’t hurt to shop around for the best mortgage interest rate.
Though preapproval can happen in as little as a day, it’s realistic to budget about a week for this process. The lender will run a credit check to review your credit score and history, and additional documents you may need to provide can include:
- Proof of income
- Bank statements
- Government-issued identification
- Tax documents
- Investment statements
Mortgage preapprovals are usually valid for 90 days, but remember that they’re not a guarantee of funds. The bank will review your application again (and in more detail) when you have an accepted offer on a property and apply for the mortgage, so avoid making any major purchases or opening new accounts once you’ve begun the process.
Time needed: Seven business days
Find your house (if you haven’t already) and arrange a tour
This is perhaps the most “it depends” category of the short sale timeline process because finding a house can happen within a matter of hours, days, weeks, or months.
Your agent can search the multiple listing service (MLS) for available short sales, and certainly you can do your own research online or by driving around neighborhoods of interest.
Once you’ve found a home of interest, it’s time to schedule a tour. Your agent will contact the listing agent to arrange a time. This can usually happen quickly, as people selling a home are often eager to expedite the process and welcome walkthroughs. While 24 hours’ notice may be preferred, a same-day visit isn’t unheard of.
Time needed: Between two and four weeks
Determine your offer price and deadlines
So you’ve been through the home, you like what you see, and you’re ready to talk numbers.
Your agent can help you determine what may be a fair offer, but in the case of a short sale, there’s often less room to negotiate.
Remember, it’s not up to the seller to decide that an offer sounds good — the bank has the final say.
Involving the listing agent and seller to determine how much is owed on the property is a good start, but you’ll likely need an appraisal or a broker price opinion (BPO) to support your offer when you submit it.
While your real estate agent can put together a BPO, a formal appraisal means hiring a licensed appraiser to come out and evaluate the property according to its condition, amenities, location, and more in relation to other homes in the area. These valuations are important in a short sale offer because they can help strengthen the overall case that the homeowner is underwater with their mortgage.
Factoring in an appraiser’s availability, along with a few hours to assess the home and a few days to a week to prepare their report, expect a wait of a week or two — especially in a busy market where homes are selling quickly and appraisers are booked up.
“One thing a buyer can do is find out who the seller’s bank is that you’ll be dealing with,” Wisdom advises. “There are a lot of reviews on different banks and how they’re handling short sales. I can tell you right away if it’s going to be a long process or a short process just by the fact of who the bank is and if they have their act together.”
He notes that while smaller banks tend to have fewer hoops to jump through, they may be less forgiving. Larger banks often have more resources and may be willing to accept a lower number, but the sale itself may take longer.
Again, this aspect is out of your control, but an agent experienced with short sales may be able to recognize the bank and know what you’ll be up against from the outset.
Finally, if the home is a condo or in a neighborhood managed by a homeowner’s association, you’ll want to check with the seller to find out if they are behind on any HOA dues. These expenses aren’t often top-of-mind, but they can throw a wrench in an otherwise promising sale.
“HOA fees can crush a whole deal,” says Sanders. “Some people don’t ask, and then all of a sudden you put two years of past-due fees on the [paperwork] you’re submitting to the bank and they say, ‘No, we’re only paying for six months’ — the HOA isn’t going to negotiate down to six months. Trust me.”
Time needed: Between one and two weeks
Prepare necessary documents
Like with any real estate sale, you’ll have to get your documents together so that everything is in order at the closing table. Short sales require some additional documents and hoops to jump through, though — some of which you’ll see as a buyer and some of which are entirely up to the seller.
The seller’s side of things is, of course, much less in your control as a potential buyer. Because the bank will need to see that a seller is incapable of satisfying their debts, there’s paperwork you simply cannot submit on their behalf.
“Every bank has different paperwork, but most banks want a copy of [the seller’s] financials, their tax returns, and they want a hardship letter stating why [the seller] is in the situation,” explains Sanders.
While the seller’s personal documents are out of your hands, you and your agent can work on the BPO or appraisal, which will likely be required to support the purchase price, and your agent can stay in touch with the listing agent to help encourage the seller to keep things moving forward.
“Sometimes the sellers just don’t care as much,” says Wisdom. “They may be slow to get their documentation when it’s needed, and that just slows the whole process down.”
But it’s not all on the seller; the bank itself can be the real bottleneck.
Time needed: Between two weeks and two months
Make the formal offer
Now, depending on how your agent has guided you through the short sale process — and where the seller already was in their process before you came along as an interested buyer — you may have submitted your offer before now.
Sometimes the seller’s documents will be submitted to the bank along with a buyer’s offer to present as one comprehensive package. In other instances, you may have only discussed numbers and ordered inspections to cover all the bases before writing up a formal offer.
In either case, this is the step where you’ll sit down with your real estate agent and put pen to paper. Documents you’ll want to prepare to include with your offer include:
- Your preapproval letter from your lender
- A copy of your earnest money check
- A copy of the appraisal or BPO
- A copy of the inspection report (if your agent recommends it in your favor)
Your agent will then present the offer to the listing agent, ask if there’s any lingering paperwork that may still be needed from the seller’s side, and then the real waiting game begins.
This is where it could take potentially months for the bank to review the file and make a decision about whether or not to accept the short sale. There’s little that can be done to speed up the process, aside from your agent encouraging the listing agent to stay on top of the bank.
“You think you’re waiting for the bank to call you back? No,” says Sanders. “[The listing agent] needs to be on top of them, to call and say, ‘You have the file, is there anything that you’re missing?’ and not to be lazy and say, ‘I couldn’t get my negotiator on the phone,’ — they should call back and speak with a supervisor.
“You have to push, or you will not get this done. You have to be aggressive or it won’t happen.”
If you’re starting to feel discouraged by how long a short sale takes, take heart! Sanders reports that, in her Florida market, short sales in 2008 and 2009 would take six months to a year, whereas “today, I would say it’s between two and four months.”
In Illinois, meanwhile, the current process may take longer.
“I try to be conservative with buyers so their expectations aren’t let down,” Wisdom says. “Some people might say, ‘Oh, it’s going to take 60 days,’ but in our market, the reality, I would say, is more in the four-to-six-month range. On average, probably five months right now.”
Bottom line: No matter where you live, if you’re buying a short-sale home, you’ll need to be patient.
“Some banks have their act together and they’re organized; we’ll get surprised and we’re able to get it done within 60 days, but I would say that’s on the very rare side,” Wisdom adds.
Time needed: Between two and six months
Order an inspection and title review
While an inspection of your potential short-sale home is optional, it’s nonetheless highly encouraged to help you avoid surprises after closing.
Though most short-sale homes are sold as-is and you won’t be able to go back to the bank to ask for, say, a $3,000 credit to replace bathroom flooring, you may still want an overview of what repairs await the property after it’s yours.
If you’re an investor and planning to flip or rent out the home, you may already have a budget in mind for renovations, and a thorough inspection may be less important to you. To move into it as your own, though, it’s a good idea to know what you’re getting into.
“Most buyers don’t want to spend the money, but if you’re going to wait [potentially] months [for the bank to approve the short sale], you really should just do it,” Sanders encourages.
The same goes for a title review. The last thing you want after weeks or months spent waiting on bank approval is to move toward closing, only to find out there are tax or repair liens — or other encumbrances — on the property’s title.
Since you’ll likely order these reports while waiting for a response from the bank, they probably won’t add to your overall short sale timeline, but it’s worth budgeting time nonetheless.
Time needed: Two weeks
It’s closing time!
When your perseverance has paid off and the bank has accepted a short sale with your offer, it’s time to proceed with the closing process.
The good news is that once they’ve approved everything, the bank will be eager to finish the transaction — probably within 30 or 45 days. (You can help expedite this by having already completed your inspections and title search before acceptance!)
The next step will be finalizing your mortgage loan, so you’ll want to reach out to your lender as soon as possible. Hopefully, you’ve avoided major purchases during the waiting period, and your finances are still in order to proceed with the loan.
Your agent will help you through the closing process in accordance with the bank, and, pending any unforeseen delays, the home should be yours in about a month — congratulations! You made it!
Time needed: Between one and two months
Total time needed for a short sale
A conservative estimate should allow for six months, start-to-finish, on a short sale.
While it’s technically possible to complete in as little as two months, it’s unlikely. As we’ve reiterated, your patience will be one of the most crucial aspects of your short sale timeline.
Well, that and a great agent, of course!
Header Image Source: (Ismael Paramo / Unsplash)