Buying a Wellington Short Sale | The Series

Buying a Wellington short sale can be a very confusing and stressful process with a lot of unknowns, but our team of Wellington short sale agents will guide you through the entire process from start to finish regardless if you are a Wellington short sale seller or buyer.

Below we have created a Wellington short sale series specifically for home buyers. We have taken the most popular questions and events that take place during the short sale process and written about them.

What is a Short Sale?

A short sale is when a seller owes more than their home is worth in today’s real estate market, so they ask their lienholder(s) to accept less than what they owe. Unlike a bank-owned home (REO) a short sale seller still owns their property.

What To Expect Buying a Wellington Short Sale

1. Short Sale Negotiations
The residential contract for sale and purchase is between a buyer and seller, which is the person who owns the property on record, not the short sale lienholder(s). While the short sale bank ultimately needs to approve the short sale in order for the home to be sold, they are not a party to the actual contract.

So when a buyer submits an offer on a short sale they will be negotiating with the seller, who can accept, counter or reject any offers they receive. Once the seller accepts an offer they will then submit the executed contract along with their hardship package to their lienholder(s) for consideration.

Short sale sellers cannot accept multiple offers because they only have one home to sell nor can they submit an unexecuted contract to their lienholder. Therefore, if you’re buying a Wellington short sale and the seller is accepting multiple offers or not accepting an offer in writing it could present major issues.

2. Short Sales are NOT Short
Home buyers often assume the word “short” in short sale refers to the time frame it will take to receive short sale approval. Unfortunately “short” in short sale does not stand for the time frame, it stands for “shortfall,” which is what the seller’s lienholder will be taking. The actual time frame it takes to receive short sale approval (or denial) will vary. It will ultimately depend on how many lienholders are involved, who they are, who’s assigned to processing the file on the lienholder’s behalf, who’s processing it on the seller’s end, and how proactive the seller is.

Some short sales may be approved within 30 days while others may take weeks, months, and in some cases over a year. While hundreds of short sales are approved every month some short sales will not be approved for numerous reasons, including the seller not agreeing to the short sale approval terms. Yes, the lienholder will most likely have terms the seller needs to agree to, such as paying a contribution at closing. Not all sellers can or wait to do this. So even if a short sale is approved by the lienholder doesn’t necessarily mean the seller is going to follow through.

3. Expect to Pay Market Value
While short sales are technically considered “distressed sales” the prices that short sales sell for are not! Lienholders want to recoup as much money as possible, therefore, they want top dollar for the property. So far in 2012, the list-to-sales price ratio for short sales in Wellington is 97.05%, which means a short sale listed for $300,000 will sell for $291,150, which is less than 3% off the list price.

While some home buyers think they will be able to purchase a short sale for 20% below market value they are mistaken. Wellington’s list-to-sales price ratio across the board for traditional sales, short sales & bank owned homes for 2012 is almost 96% and I would not be surprised if that number gets to 97% or even 98% by the end of the year. So if you think buying a Wellington short sale is going to be a phenomenal deal that probably won’t be the case.

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4. Get Your Checkbook Out
If the seller accepts your offer, just like a traditional sale, you should be prepared to put down an initial escrow deposit. The initial escrow deposit is usually between $1,000 to $5,000 and is collected upon the seller’s acceptance. Then an additional deposit will be collected within a certain time period once the short sale is approved.

These funds will be held by a brokerage, title company, or attorney. Depending on how the contract is written the initial escrow may or may not be refundable. So if you’re buying a Wellington short sale it’s important to understand your obligations and the terms you’re agreeing to when purchasing a short sale.

5. Have Your Lender on Standby
Since the short sale process can take several weeks, months, or even a year if you’re obtaining a mortgage it’s imperative to have your lender on standby. This means knowing which lender you will be using along with all of the documentation they will require from you to process your loan application. By doing so once the short sale is approved you’ll be able to send everything to your lender and they can start processing your loan.

While you can certainly start the loan application process prior to short sale approval it usually doesn’t make sense for several reasons. One, most loan approvals have an expiration date. So if your loan is approved and ready to close but the short sale hasn’t been approved it was all for nothing. Two, you will most likely need to spend money on items like a home appraisal, which could also have an expiration date. So there is a possibility you’ll need to pay these expenses twice if short sale approval isn’t received in time.

This is why most short sale addendums included in the contract state aside from the initial escrow deposit contractual due dates are based off the day short sale approval is received. This way buyers aren’t unnecessarily spending money on home inspections, a survey, and a home appraisal. Since most short sale approvals are only good for 30 days, sometimes a tad longer, it’s important to be prepared and ready to go once approval is received.

If you are not ready and the short sale approval expires the seller may have to start the short sale process all over again and the short sale approval terms may change. With that being said foreclosure proceedings may have already started at that point, so it could be a race against the clock.

So the minute you’re notified the short sale has been approved, which verbal approvals tend to come first, it’s important to hit the ground running and start performing.

6. Be Prepared for Disappointment
While most Wellington short sales will be approved, there is always a possibility the seller may be denied or not agree to their lienholder’s short sale approval terms. Yes, short sales do get denied and yes, the seller has the right to reject their lienholder’s terms.

A few years ago I was working with a great buyer who was under contract on a beautiful short sale. After patiently waiting for five months we were informed that even though the short sale was approved the seller would not agree to their lienholder’s short sale approval terms. The seller tried negotiating with the lienholder but they weren’t budging on their terms of the approval, so the deal fell apart. Knowing anything can happen when it comes to buying a Wellington short sale I made sure my clients understand the possible outcomes prior to even submitting an offer. So while they were disappointed they understood that buying a Wellington short sale might not pan out.

Final Thoughts

Navigating the real estate market especially when buying a Wellington short sale requires a blend of strategic foresight and informed decision-making. It also requires a trusted advisor who can educate and guide you through the entire process. There are many pros and cons when it comes to buying a Wellington short sale, so it’s important to understand the possible outcomes before pursuing this type of sale.

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Buying a Wellington Short Sale | The Series