So You Want To "Gamble" On A Short Sale...

If you are in the market to buy a home in South Florida, you've undoubtedly been tempted to look at short sale properties.  A sale is considered a "short" sale when the market value of the property is less than the remaining loan balance and the owner has a documented financial hardship which will not allow them to bring the money delta (shortage) between the selling price and the mortgage balance to the closing table.

Once this condition occurs, the lender(s) must agree to the sale!  If the lender(s) have not approved the listing at particular price, it is not an approved short sale and therefore is simply called a short sale.

For the lender(s) to approve a short sale, they analyze the value of the property (by engaging at least two broker's for their pricing guidance and an independent appraisal is performed) and also scrutinize the owner's financial situation.  Once they are convinced that it is financially better to allow the property to sell for less (causing them to take a loss) rather than going to foreclosure, taking on the tax and maintenance burdon, and the risk of trying to sell it themselves.

Now you enter the picture...

You find a short sale home that you just must have.  So, you sharpen your pencil and put in an offer lower than the listing price, right?

Not only do you have to overcome the difference in price the bank has agreed to already take a loss on, you must also wait until both the seller and the bank wade through their options.  After that, the bank needs to re-evaluate whether the seller has any money to help make up the shortfall.

This process can take anywhere from 2-5 months and will surely frustrate even the most patient of buyers.  It's always a game of not knowing if your offer is going to be accepted or if someone will outbid you while you wait.

If you are lucky, another buyer may have already gone through the short sale process only to see it fall apart.  Then, the property may "graduate" to being an Approved Short Sale. By now the seller and the bank are getting more motivated to get the deal done and the APPROVED PRICE has been provided to the listing agent.  Now, there is no doubt what price will likely buy the property.

If you make an offer on an approved short sale for the APPROVED amount, you have a very good chance of going right to contract, and closing. No long wait for approvals, little chance of being outbid and a quick close. If you chose to offer a bid lower than the approved amount, the waiting process may start all over while the new offer is analyzed.  Of course, it could also be summarily rejected as well.

As always, your mileage may vary...

Wouldn't you be better served to find a non-distressed seller who is competing against the short sale prices in their neighborhood and simply work with an unencumbered proerty and negotiation.