What does SHORT SALE APPROVED really mean?

SHORT SALE APPROVED!! 

What does Short Sale approved actually mean when you see it in a listing?  Well most of the time it’s misused.  From what I’ve experienced in Massachusetts and New Hampshire it means an agent has called into the lender to see what amount the lender will accept for a short payoff.  Technically speaking it really should read “Listing Price Set By The lender” or “Listing Price Approved By The Lender”   

An approval of a short sale actually comes in writing.  So unless a previous buyer had come in, put an offer in, got an approval and walked before closing, chances are the SHORT SALE APPROVED on the listing you read just means that the listing price has been approved by the lender.  If an agent is negotiating an approval on a particular property that means a buyer is in place and your offer would be considered back up if you chose to go forward and the lender may never see it.  There is nothing to necessarily negotiate if there is no buyer so how can there be an approval? Banks don’t typically issue approvals if there are no buyers.

 A short sale approval is lengthy (see one here) and gives the terms, conditions and deadline for the approval.  It also shows who is approved to buy and sell the property along with any payoff to a second lender, commission, negotiation and sometimes closing fees.  That is an actual approval of a short sale.  If you are submitting an offer where a previous buyer has walked from the sale, the bank still needs to issue an approval to you.  You will likely have a better shot at an approval if your terms and conditions are the same as the previous buyer, but there is always room to negotiate.  If you submit an offer you could likely have to start from scratch again.

 Also, just because there was a previous approval at a certain amount doesn’t necessarily mean they will approve at that amount again.  You can NEVER tell what a bank will do.  We have an offer on a property in Methuen and the bank countered at $139,000.  The subject property is a complete gut job and needs to be redone in every which way.  We hired an appraiser who valued the home at $90,000 and submitted it to the lender.  They came back at $145,000.  So don’t ever try to find out a lender’s logic or reasoning as you will drive yourself insane.

Keep in mind you want to see ALL approvals so if the subject property had two liens, (a first and second mortgage) you should be able to view both approvals.  Lender one and lender two are famous for not being on the same page, so they could have separate closing dates, terms, etc.

If you see a listing that says, “Short Sale Approved” ask the agent to provide you with the approval letter.  Unless a previous buyer has walked, what you are really walking into is a listing price that might be approved by the lender.  Either way you could still have some negotiating room to go!!  Don’t think you have to offer the approved price to actually GET your offer approved.  If you have good agents working with you, they will try diligently to have your offer approved, no matter what the list price is.

Happy home buying!

Maryann Little owns a preforeclosure acquisition and negotiating company and works with distressed homeowners and their agents in Massachusetts and New Hampshire.   Short sale buying and negotiating Massachusetts.

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