A short sale is always uncertain until it is official and has the approval of the bank. Short sales occur when the banks agree to approve an amount for the sale of a home that is less than the balance owed on the mortgage, but even for properties, which are labeled as short sales, it won’t necessarily work out. Plenty of things need to align appropriately for the banks to acknowledge a short sale and this includes an appraisal value determined by an authorized property appraiser.
Usually a home seller in the quest to find relief from a mortgage obligation or to avoid a foreclosure, may opt for a short sale. There are several reasons why banks reject short sales but the three most common reasons that disqualify a property for a short sale are comprised of an initial offer price that is very low, disqualification of the property seller for the short sale, or disqualification of the buyer for the short sale.
- The offer price is too low: Generally, the bank will need an appraisal from efficient appraisers, like New Jersey real estate appraisers, to establish the price of the home before moving ahead with an short sale approval. At times, the bank may even request a broker price opinion (BPO) to be conducted in place of the complete appraisal. Usually, a BPO calculates the value of a home by considering the comparative sale prices of three recently sold homes in the neighborhood. This proceeding is common with short sales and is quicker and more economical as compared to the other processes. If the offer price is considerably lower than the value offered by the BPO, the bank will be disinclined to approve the offer for the sale of the property. It’s entirely up to the bank’s discretion whether or not to approve the terms and conditions of the offer. Typically, a bank will weigh the price to sell, price to hold, and foreclosure cost when acknowledging the decision to sell a home.
- The home buyer does not qualify: A bank will need evidence that the buyers qualify for the purchase of certain house before approving an offer from them. The buyer needs to be financially capable of purchasing a property. Usually, the proof required by the banks, to check whether the buyer qualifies or not, are the credit report, proof of sufficient assets to close the transaction, and a pre approval statement from the lender with sales value detailed specifically. Guidance of proficient business appraisal services may be needed before you can become qualified as a buyer, when planning to purchase a home.
- The home seller does not qualify: Most home sellers are disqualified for short sales if their property is entitled for a foreclosure. If the home seller is involved in the foreclosure proceedings, the bank may prefer to hold the property. If the bank has already invested finances into the foreclosure then the bank may opt to hold the property and attempt to sell it all by itself in the open market. It is very important for a seller to work with the lender to avoid the foreclosure proceedings and to keep all lines of communication open. It is better for a home seller to contact its bank’s loss mitigation department and talk to the representative who can assist him. Once you establish good relation, communicate regularly regarding the pending offers in order to keep the bank from initiating the process of foreclosure. If you are a home buyer, note that a home listed for a short sale does not necessarily have bank approval. The short sale advertisement does not state that the short sale is approved by the bank.
These are the three main reasons banks reject a short sale so if you are planning to try applying for a short sale, ensure that you do not fall under any of these reasons which will then make the banks reject your short sale attempt.