Q: On Sept. 28, we made an offer on a short-sale property where a previous buyer "walked out," but it says "approved short sale." My question is: Why is it taking so long for our approval? We have been prequalified already and we even made a much higher offer than the previous buyer. Is my agent not as aggressive? –Maria
A: There’s no such thing as a listing that is a truly approved short sale. I generally see this description on homes that were previously in contract to be sold as a short sale, when the bank approved the previous contract and the seller’s short-sale application, but the deal later deal fell out of escrow.
Often what happens is that the previous buyer makes an offer, the seller submits the short-sale application and then the bank takes months and months and months to respond to the application. During that delay, the buyer gets frustrated or finds another home and cancels the contract.
However, many savvy short-sale listing agents don’t notify the bank that the offer has been withdrawn; rather, they wait to see how the bank responds and then list the home as having had a short sale approved at X price. The fact that the bank has already reviewed the seller’s financials and once approved a particular sale price is marketed by the listing agent as indicating a strong likelihood that the bank will approve another short-sale offer at or around the same price point.
Many agents, sellers and buyers also suspect that a second, similar short-sale offer will be approved much more quickly, as the bank has already reviewed and green-lighted the transaction on those terms.
Nevertheless, the bank will review the seller’s financials and your offer and qualifications all over again from the time you present your offer. The primary advantage you get from a so-called "approved" short sale is that you know what the bank’s bottom line has been on this property in the very recent past.
So often, short sales are a black box for both buyer and seller in terms of what the bank will approve as a sale price on the property. With a recently approved short sale that has fallen out of escrow, you have a much better sense of what purchase price the bank will approve.
With some banks, you have the added bonus of a quicker review, especially if the listing agent is able to send the new contract directly to a negotiator who had already been assigned responsibility for the property and the short sale. With others, you can expect it to take just as long.
But the fact is you’re a new buyer, the seller’s financials might have changed and so might the market value of the property — all things the bank will want to review more fully as time elapses.
You made your offer about two months ago. It could very well still be in line behind other short-sale applications on the negotiator’s desk. With short sales, there’s no way to really know how long is too long, but clearly this bank has a track record of long enough short-sale delays to have caused the previous buyer to walk away.
My two pieces of advice would be (a) as always, with a short sale, keep looking at other properties until you have the bank’s approval of your contract, and (b) go get preapproved, stat, and have the listing agents send your preapproval letter to the bank.
You may have simply mixed up preapproval and prequalification, but if all you have is a prequalification letter (i.e., a note that says if your income is X and your credit is Y, like you say it is, you should be able to get a loan) I assure you the bank will come back and request a full-blown preapproval (in which the lender actually runs your credit, verifies your income and assets, and determines that you are, in fact, approved to obtain a loan large enough to buy the place).
If the bank has to ask you for this, it will undoubtedly take even longer to get the deal closed.