As an Agent - Make Sure you ID a Short Sale Situation Up-front. Listing Agents Aren't Revealing it. Protect Buyer Clients Who Have a Timeline

Many homes that are for sale in various neighborhoods in the Chicago area, are not occupied anymore - and a number of them are pre-foreclosure or foreclosure properties. Others - will be short sale situations.

Homes that are currently occupied may be listed for a figure where the seller will come up short after paying off the principal balance of their loan(s).

If the seller can't cover the shortfall - it will be a short sale situation - meaning that the lender will have to pick up some of the shortfall.

It is important to note that many agents are not advertising that their listed property will be a short sale in the remarks section of the MLS sheet - because they don't want to dissuade a buyer from writing an offer on the property.

Short sale situations can drag on for quite some time - and many buyers have certain time-lines. Negotiations with the lender about how much of the deficiency the lender will pick up can take time.

If a buyer client wants to get into a home in the next 60 days - it might not happen if they are buying into a short sale situation.

So - it is important that the agent representing the buyer find out as soon as possible from the other side what the seller's equity is (which can sometimes be gleaned from the tax record) at the moment - and if there will be a short sale situation - and if so - how much -- so that the buyer isn't blindsided with delays.

As a rule of thumb - the larger the deficiency - the longer the negotiation can take with the lender.

With any short sale situation - we give the buyer "an out" in the contract - if the seller's short sale negotiations with the lender are not concluded within X days.

Our buyer client can then seek a deal elsewhere.

About Short Sales...

If you are in the market to buy a home, or if you are selling a home - you have no doubt heard the term "Short Sale".

If a seller owes more on the property than what it is worth - a short sale is one option. A seller in this situation needs the lender to accept a "short" loan payoff, or in other words accept less than the full amount due on the loan.

So how does that effect you - the buyer? A short sale require the lender to agree to the reduced pay off. Therefore, when you negotiate on a short sale, you are negotiating with two parties:

1. The seller who owns the property
2. The lender who holds the loan.

You need the approval of both parties to get your offer accepted - so the process can be long and tedious.

It is important to make sure the seller has received preliminary approval from the lender, because if the lender does not agree to the terms you will have no contract.

We question the seller and/or the seller's agent to make sure the process is in place, and that the bank will cooperate. This process requires the seller to submit documentation to the lender demonstrating hardship, along with evidence that the market value is less than the outstanding loan.

It can be a long, drawn out, and ultimately aggravating experience. Often, you are dealing with layers of bureaucracy, and this can slow the process down.

You want to make sure that you have interest rate protection during this process. In a normal transaction, buyers will typically lock in interest rates for 30 to 60 days. That may not be enough time for a short sale, and you want to avoid being 45 or 60 days into the sale only to find out that your rate lock expired, and your interest rate just went up 1/4%.

We usually include in the purchase agreement a time frame for lender approval, with a clause that gives the buyer the right to cancel the transaction if the lender does not approve the sale after a certain period of time. In this way - our buyer client is free to pursue other properties if the lender is dragging their feet.

There can sometimes be issues at closing - if the owner is still living in the home. Often times, sellers in this situation are angry and frustrated, and on occasion can damage the property, remove appliances, fail to maintain the landscaping, leave the property dirty and full of debris, or take other actions that will cost you money.

We protect you with a walk through prior to closing - and if the seller is still there - we would make certain demands (depending on the situation) at the closing table to compensate you.

Since the seller theoretically has no money, any issues at close typically have to be negotiated with the bank.

Lenders like to sell properties "as is" in these situations, as they do not want to get into negotiations over property repairs. This is okay, if you have a good inspection - and know what you are dealing with (or not.) We will cancel the contract for you - if the inspections uncovers issues with the property that you don't want to deal with.

We can certainly request that the bank resolve certain issues. They are under no obligation to do so, but if the request is reasonable and it makes business sense for the bank to agree, they usually will.

Short sales can be fairly straightforward, or very complicated. This depends on the stance of the lender. Some banks are much easier to deal with than others when it comes to short sales.

As always, you should seek out an experienced, professional Exclusive Buyer Agent to help you navigate these waters.