Because of the deep decline in home values, many sellers are underwater – owing more on their mortgage than the value of the home. If a lender agrees to accept less than what is owed when a home is sold, it becomes a short sale. The lender is coming up short the amount owed to them.
When a real estate listing in Naples states “short sale,” it really means a “potential” short sale. It is saying “Hey buyer, I owe more on my mortgage than what the home is worth. To sell this home, I need the lender to accept less than what is owed.”
When the seller submits an offer to the lender, there is no guarantee the lender will participate. The lender may reject the seller as a candidate and/or reject the offer. This process can expect to take at least four months from the time of an offer, before a response is received from the lender. But can often take more than a year, or no response at all. It all depends on the lender and a big part on the seller. These are things totally outside of buyers control.
Basics of a Naples short sale.
- If the lender participates, they will only accept a market value offer, which is most likely higher than the listed price.
- The list price is meaningless. Short sales are often listed lower than the real value. This is done in order to entice a buyer to submit an offer that is doomed to fail. A seller needs an offer to begin the process with the bank – any offer. The seller does not care if the offer is for $1, as they are not getting anything at closing. But the offer has to be somewhat in the ballpark of the home’s value. The bank is not involved with setting the list price. They have nothing to do with it.
- The bank might be okay with the offered price, but rejects the seller as not qualifying for a short sale.
- As for the lender, they are proceeding simultaneously with foreclosure steps. The home could be foreclosed before any action is taken on a short sale response.
Basically on a short sale, the seller needs to accept an offer from a buyer to start the process with the bank. The offer is then sent to the bank, along with a packet from the seller on their financial situation. If the bank responds, it is usually in the four to six month time frame.
Bank Approved Short Sale
If a listing states “bank approved,” then it is an approved short sale at the listed price. That means a previous buyer participated in the four to six month process outlined above. The bank came back with the price they would accept for an offer, and the original buyer walked. But in the end, the seller got something out of it. The bank’s participation and an approved price.
Is it possible to offer less than the approved price? If it has been recently approved, then that is the price the bank will accept. If the approval is several month old, the lender will want to reassess the property and the financial status of the seller. In which case it may return at a higher price.