Anyone who’s even remotely interested in buying a home these days has heard the term "short sale" — and if the phrase isn’t familiar to you, it ought to be.

Short sales occur when a homeowner is willing to sell his property for less than the amount owed on the mortgage, and the lender agrees to the deal. In many cases, these sales can turn out to be genuine bargains.

It’s the phrase du jour in housing: A recent Zillow.com survey estimated one in five mortgage holders are "under water" — their homes are worth less than the balance on their mortgages. Another study, from the National Association of Realtors, found that one in 10 recent buyers purchased through a short sale.

Anyone who’s even remotely interested in buying a home these days has heard the term "short sale" — and if the phrase isn’t familiar to you, it ought to be.

Short sales occur when a homeowner is willing to sell his property for less than the amount owed on the mortgage, and the lender agrees to the deal. In many cases, these sales can turn out to be genuine bargains.

It’s the phrase du jour in housing: A recent Zillow.com survey estimated one in five mortgage holders are "under water" — their homes are worth less than the balance on their mortgages. Another study, from the National Association of Realtors, found that one in 10 recent buyers purchased through a short sale.

But short sales are a different animal than traditional real estate transactions, and they’ve been known to frustrate and disappoint buyers who are unschooled in their complexities.

Five things short-sale buyers ought to know:

1. Short sales are almost never short, so to the patient buyer go the spoils. The process, from making an offer to the closing, can take anywhere from a few weeks to more than a year — sometimes longer, according to Bonnie Overbeck, a Cincinnati-area real estate agent who specializes in short sales. She says, however, that in her area they typically take 90 to 120 days.

The basic reasons for the delays, Overbeck said, are twofold: One, the bank is taking a loss on a deal, which it obviously isn’t eager to do. Two, some lenders are awash in foreclosure and pre-foreclosure properties these days, and they’re just not staffed to process these home sales in volume.

"Banks are flooded with these deals, and they’re trying to put a Band-Aid on the problem," Overbeck said.

"(Some short-sale) negotiators have 300 and 400 files on their desks," she said. "These employees are working from a script, and are paid by the hour to process a file."

2. Work with an agent who has a track record in short sales. These can be complex deals with their own rules and etiquette, and they require knowledge of what’s reasonable and customary.

Overbeck is one of a growing number of agents in the newly emerging short-sale specialty. Three years ago she and two colleagues formed a team, Three Blondes and A Short Sale, at Huff Realty in Cincinnati. In addition to representing buyers and sellers, the group also trains other agents in short sales and acts as a short-sale negotiator for other agents.

"When we talk with agents (about the process), we tell them the typical real estate agent is a general practitioner," she said. "A short-sale practitioner is your cardiologist." …CONTINUED

A common mistake is that inexperienced agents unknowingly submit incomplete documents, and wait for the bank to get back to them, she said.

But human nature means that those who are processing the documents will take the path of least resistance, she said: With hundreds of pre-foreclosure files on their desks, many negotiators will simply push the most complete offers to the head of the line.

3. Buyers need to impress lenders that they’re serious. Overbeck said buyers need a "very strong" preapproval letter from their lender with a solid financial package and proof of funds for their downpayment, or cash.

Buyers also should invest in a thorough home inspection before making an offer, she said.

"I don’t want them waiting for three months for the bank to respond and then find out the furnace is bad or the roof needs to be replaced," she said.

4. Pricing is critical. The homeowner’s listing price isn’t necessarily a good guideline. And super-lowball offers probably will go nowhere, Overbeck said.

There are rules of thumb in the industry about making an offer just under either the bank’s appraised value for the home or the broker’s price opinion, which is an estimated value derived by a real estate agent hired by the bank.

However, Overbeck warned that many short-sale properties come with pricey strings attached: The homeowner may not have paid his property taxes for some time or owes homeowners association dues, etc. Those expenses will be liens on the property that also have to be resolved in the transaction, she said.

5. Be prepared to walk away. Banks aren’t required to agree to these deals.

"Closing a short sale is a huge balancing act," she said. "When I work with buyers, I’m up-front. I say, ‘You must have patience and fortitude and you cannot be emotionally tied to this investment. It might not work.’ "

Mary Umberger is a freelance writer in Chicago.

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