How Long Does a Short Sale Take? Anticipating the Short Sale Timeline
A short sale is a sale that occurs when a homeowner owes more money on their mortgage than the market value of their home. How long a short sale will take is based on different factors. Does the homeowner have more than one loan for their home? Do they have mortgage insurance? What type of loan(s) do homeowners have for their home?
The bottom line is that short sales do take a long time to complete for both the selling and buying process, and an exact timeline is hard to determine. Homeowners who are contemplating a short sale as an option should be prepared for the process to be lengthy. Homeowners who can continue to pay their mortgage while the short sale is taking place may be able to avoid the worst credit impacts, meaning that anyone who is trying to sell their home as a short sale should budget, plan and be prepared.
Home buyers who are contemplating purchasing a short sale may also have a long wait ahead of them. During the short sale process, some banks take weeks to respond to offers, while others never respond at all. Patience is key to purchasing a short sale home.
The following information can help buyers and sellers prepare for the short sale process.
Short Sale Process Timeline: Sellers
The timeline for selling a home as a short sale varies by state and depends on the actions of the homeowner, the actions of the bank, the various internal processes within the bank, what the difference is between the mortgage value and the value of the home, and other factors.
To sell the home as a short sale, the homeowner begins the process by submitting a package, as required by the bank, including information about the homeowner's finances, information about the market value of the house and the particular hardship the homeowner is experiencing that would make the short sale a necessity.
After turning in the application, the homeowner may also give the bank any offers on the home. Because banks may choose their own timeline to respond to these offers, short sales processes can require a long waiting period.
The short sale process involves extensive paperwork sent back and forth between the bank and the homeowner.
Collection of Documentation: 1 - 3 Weeks
Homeowners must prove they qualify for a short sale. In order to do this, they must turn in various documents to show hardship and to prove the value of the home. The process of collecting documents begins when the homeowner calls the bank to find out what they expect to receive from the homeowner. Because this includes writing a letter and collecting supporting documentation like pay stubs, this process can take between 1 and 3 weeks.
Property Valuation: 1 - 3 Weeks
The lender will request a property valuation, either from a real estate professional or from an appraiser. This process can take up to 3 weeks, depending on when the bank schedules an official appraiser.
Negotiations: 1 - 3 Weeks
Once the homeowner begins turning in offers to the lender, the lender may take several weeks to respond to the home buyer with a counter offer. If the home buyer and lender go through several rounds, this may take even longer.
Escrow and Close: Up to 6 Weeks
In a standard home sale, the escrow process generally takes about four weeks. In a short sale, however, the escrow process can take longer. Therefore, homeowners and home buyers must be prepared for a wait.
Exceptions to the Timeline
Some factors can complicate the short sale process, causing it to take longer than it would otherwise. Examples of these exceptions to the timeline include the following.
Multiple Lien Holders
When the homeowner has multiple mortgages on the home, lien holders must get in line to collect money on the balance owed. If all lien holders cannot mutually agree to a settlement, then the deal may fall apart.
Sometimes, buyers lose patience waiting to hear back from the bank. If the bank does not respond to an inquiry from a buyer within a certain period, the buyer can walk away. Some home buyers will wait until they hear from the lender, while other buyers will move on. When a buyer is lost, the homeowner must start the process over, which can extend the home selling process by weeks or even months, depending on how long it takes to find another buyer.
Inaccurate BPO or Appraisal
If the broker price opinion (BPO) or appraisal for the property is inaccurate, then the representatives at the bank may develop an unrealistic expectation for how much they can get by selling the home. This can extend the selling process by weeks or months as the lender waits for an unrealistic offer that may not come.
Short Sale Rejection
If the lender rejects an offer from a home buyer, then the buyer must make an additional offer, or the homeowner must wait for a new offer from a new buyer, which can add more time.
Short Sale Process Timeline: Buyers
Buyers and sellers are subjected to a similar timeline throughout the short sale process. From the buyer's perspective, however, the short sale process may look different. For a buyer, the short sale process consists of a long waiting period for the lender to acknowledge and respond to documents.
Although standard home sale processes also include similar steps, short sales do require more time. At every milestone of the process, the home buyer must wait for the lender to respond. One of the reasons that many homeowners drop out of the short sale process is because there is no guarantee that lenders will respond to the offers that buyers make. Without the promise of a response, many home buyers eventually lose patience and interest.
The process for buying a short sale follows the steps below.
Mortgage Approval: 1-2 Months
Receiving a mortgage approval takes most home buyers a couple of months, starting with a pre-qualification and ending with the closing of escrow and the signing of the mortgage documents. Most home buyers who want to be considered a strong candidate to purchase a home should get pre-approved before making an offer on a home.
Identify a Home to Buy: 1 Week
It takes most potential buyers at least one week to look at online listings, and view a home they would like to buy. Once they've seen the house, the home buyer may come back a second time before making an offer, or may make an offer immediately following their first visit.
Make an Offer: 1-2 Weeks
Making an offer to a homeowner takes a couple of weeks, as the home buyer and homeowner may negotiate before they can agree on a final price. Once the offer is signed by both parties, the offer must go to the lender for final approval.
Get Short Sale Approved by Lender: Up to 12 Months
A lender can take as long as 12 months to process a short sale package, including an offer from a viable buyer. In that time, the buyer must wait for approval from the lender. If no response is received from the lender, then it may be time for the interested buyer to move on to a different home.
Altogether, the purchase of a short sale home can take as long as a year or more. Home buyers who are interested in purchasing a short sale home must be prepared to wait.
Can the Short Sale Process Be Accelerated?
Although there's no sure way to accelerate a short sale, some home buyers and homeowners can help speed up the process by doing the following.
Work with an Experienced Real Estate Professional
Real estate professionals who have experience with short sales often find it easier to navigate the complex process of selling or purchasing a short sale. Furthermore, a real estate professional who has experience with this kind of work will know how to correctly structure the offering price and the offer itself so the lender will be inclined to accept the offer.
Correctly Structure Your Offering Price
Lenders want to recover as much money from the sale of the house as possible. An offer that is too far below the market value of the home is unlikely to be accepted by the lender. Home buyers who are serious about making a purchase and homeowners who are serious about making a sale should make an effort to present offers to the lender that are reasonable and fair.
Make Offer as Free of Contingencies as Possible
Home purchase contingencies can be a road block to having an offer accepted. Buyers who make an offer with as few contingencies as possible are more likely to get a faster acceptance from the lender.
Patience Is Key
Patience is key when buying or selling a short sale. However, buyers and sellers can work with an experienced real estate professional to make the short sale process easier overall. For more information about purchasing or selling a short sale home, contact an experienced real estate professional in your area.