Short Sale Properties: 5 Key Things Your Clients Should Know

Short sale. The mere mention of those words can send shivers down the spine of even the most hardened real estate professional. While the volume of short sales in most markets has declined since 'the big real estate crash,' they are still out there, and for the right buyer, a short sale may be their ticket to a new home.

Every sale is different, whether short or traditional, but short sales have their own unique aspects that are important for buyers to understand.

Here are five key things your short sale buyers and sellers need to be aware of.

Patience is a virtue

The most important thing a short sale buyer or seller needs to understand is that these things take time — often much more time than they expect. While the closing time for a traditional sale can be measured in days or weeks, a short sale can take months to complete. Back in my broker days, we closed several in a 6-month time frame, and I've heard some agents report closing times of up to a year. Before starting the buying or selling process, your clients need to understand that it could take months to get lender approval (or denial) for a short sale.

You need an attorney

Sellers that are considering a short sale really need to speak with an attorney who is well-versed in all aspects of short sales. There are potential legal and tax issues surrounding any short sale, and speaking to an attorney — even in states where attorneys aren't typically used in the home sale process — is crucial.

Get ready to be declined

In a typical traditional sale, once the buyer and seller have come to an agreement on terms and the buyer has their inspections and financing wrapped up, transactions rarely fall apart. You're almost assured of closing and being able to move into your new home. Short sales are a different beast. If there are multiple liens on a home — like a second mortgage or a HELOC — each lender has to approve the short sale. It's not unusual for the primary mortgage lender to approve a short sale only to have a secondary lender nix the deal at the last second.

You are buying the property 'as is'

In a short sale, the seller cannot make any money; all proceeds from the sale are directed to the lender, who is getting less for the property than what they loaned on it. Because of this, the vast majority of short sellers will not make any repairs to the home. Some sellers may agree to make minor repairs in order to get the transaction closed, but very few short sellers are in a position to make big ticket repairs like roofing, HVAC or structural work. Use your inspection time carefully and be sure to fully understand the property conditions.

Your agent is limited in what they can do

It's difficult to have the patience required to weather a short sale. Your agent wants the transaction to close, but they are quite limited in what they can do to make that happen. Unlike a traditional sale where both the buyer and seller are human beings, in a short sale the banks and mortgage investors are really the sellers and they call the shots. A buyer's agent can't even talk to the bank, and the seller's agent can only do so much given the red tape involved in a short sale. Calling your agent daily for an update is usually futile, which can be incredibly frustrating for all involved.

That said, the last thing you want to do is try and tackle this process without an experienced agent by your side, even if they can't necessarily expedite or affect the outcome of a short sale.

Someone is probably reading this and thinking, 'Who in their right mind would get into a short sale?' For sellers, a short sale is often a way to avoid foreclosure. For buyers, it's an opportunity to purchase a home you love, and it typically carries less risk than buying a foreclosed property. Often, though not always, a short sale property can be purchased at less than market value, allowing a buyer to have 'instant equity' in their new home.