How to Get a Buyer Prepared to Close a Real Estate Short Sale Transaction

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How to Get a Buyer Prepared to Close a Real Estate Short Sale Transaction

Posted on 21 October 2009.

Whether you are the listing real estate agent or an investor, perhaps one of the most important aspects to a short sale is to make sure that the buyer on any given property can actually close, and that they aren’t just wasting everyone’s time. With tighter lending guidelines these days, buyers are not only taking longer to get mortgage commitments, but some are having a tougher time even getting loans to begin with. And so, it is very important that you make sure that your buyer is a legitimate one, and that you prescreen them accordingly. After all, what’s the fun in spending months on a short sale only to have it collapse because the buyer can’t close in time?

Prescreening Your Buyer

When making sure that the buyer can actually close, you’ll need to be aware of several different things, and have answers to the following questions:

What type of loan is the buyer applying for?
What types of repairs are needed on the property?
If the buyer were to start working on their loan today, how quickly can they close?
How much time will the foreclosing lender provide for the buyer to close?
Is the buyers’ loan being originated by a mortgage broker or a direct lender?
Why are these important questions? Because their answers can make or break your deal plain and simple.

If you’re working with a buyer that is applying for an FHA loan then you’ll have to be aware that the homeowner may need to repair some things on the property prior to closing. Reason being, it is an FHA guideline that the condition of the property is to be up to their standards.

One important thing to understand…foreclosing lenders typically only allow 30 days for buyers to close after they issue their written short sale approval letter. And so it is very important to always keep that in mind as you prescreen each and every buyer you bring in. If you’re dealing with a buyer that needs 45 days to close, then you’ll need for them to start their loan application process before you get written approval from the foreclosing lender or you will find yourself asking the Lender for an extension to your short sale acceptance letter.

It is important to know if a buyers’ loan is being originated by a mortgage broker or a direct lender. Mortgage brokers are becoming an “extinct breed”! The bottom line is that mortgage brokers are being unjustly accused and are targeted as one of the main contributor to the housing crisis. The remaining few are having a challenging time getting someone to purchase the loans they originate. If the buyer is going through a direct lender the chances of closing have greatly increased! Keep in mind that direct lenders can either hold the loan themselves or sell it in the secondary market!

If you’re unaware of the answers to these questions, then the best case scenario is that you’ll get lucky and it will close. The worst case scenario…the deal will collapse completely with no hope of resurrection. And so, don’t assume that the buyer will always be able to close, and that your involvement isn’t necessary in their loan commitment process. Your involvement is critical! Keep in mind, the buyer has no idea how short sales work, and doesn’t understand that if they can’t close by a certain time then they won’t get the property.

Educating Your Buyer

In addition to prescreening them and making sure they can qualify for the home, it is also your job to educate them. Most buyers come in and submit an offer knowing that it is “subject to lien holder/short sale approval.” But most of them have no idea what that means, or what is involved in getting that approval. Nor do they understand that they can’t take their sweet time getting their loan commitment. Many of them may have only 3 or 4 weeks to close. This is also part of what you’ll need to do as you progress through the short sale. Make sure that every buyer you work with understands clearly that the foreclosing lender is in the driver’s seat. Too many buyers think that they’re running the show, but that is simply not the case. If the lender doesn’t like their offer, or feel that they’re taking too long to close, then they can simply squash the deal.

Additionally, you’ll constantly be updating the buyer as to the status of the short sale, and may have to explain with frequency that each step of the process takes some time, since most of the buyers you find will be extremely impatient. That’s no problem though; just make sure you clearly set their expectations up front. That way, you’ll get a sense of where they stand and hopefully secure them as a solid buyer or at least avoid wasting time if they aren’t all that interested in the property.

When getting a buyer prepared to close on a short sale transaction it is extremely important to set proper expectations and to make sure they have the ability to actual close the transaction! I know it is not supposed to be your responsibility to pre-screen the buyer but the unfortunately truth is that not every buyer’s agent knows that lending guidelines are changing a daily basis. We encourage all our visitors to ask questions or leave a comment in the section below, We hope to hear from you soon!