Short sales and bank owned properties (REO) seem to be in hot demand these days in the Phoenix area. Why shouldn’t they be? For many, these properties can make perfect sense plus there are lots of them to go around. According to Phoenix area real estate agent Jonathan Dalton there are currently over 5000 short sale homes listed in the Phoenix MLS and over 4700 REO’s. This represents almost 20% of homes currently on the market.

I’m not suggesting you should purchase short sales or bank owned properties, but if you should decide on making an offer here are four things you need to know:

1. Short Sales Want Quick Closes: While the actual short sale approval process may take several weeks, once the sale has been approved, the bank typically will go with the buyer who is able to close very quickly. Quick here means ten days or less. Hence, they give priority to cash offers if acceptable but if there are none, then they will accept the next quick close.

2. Obtain Credit Approval Before Making An Offer: Since you are more likely to have an accepted offer if you can close quick it is important that you as the buyer work with a lender that allows “credit only” approvals. This means you will have signed the initial loan disclosures, reviewed all loan parameters and decided on your loan. Additionally the lender will have collected all the necessary documents and provided a full underwriting approval. The only piece remaining at this point would be the property appraisal.

3. Obtain Commitment Letter From Lender: While getting pre-approved and submitting an LSR with your offer is important, I suggest you obtain a commitment letter from your lender. A commitment letter indicates that you have indeed been approved for the loan and are 100% able to finance the purchase. Lenders will typically only issue a commitment letter once the loan has been approved by underwriting (point 2).

4. Line Up Appraisal and Home Inspection: As I mentioned earlier, the bank will accept offers that can close within 10 days. This means you need to have a home inspector lined up to inspect and approve the property to your satisfaction. Additionally, your lender needs to have an appraiser ready to go in on very short notice. Time is of the essence here and you need to be prepared.

It seems like most the borrowers I’ve worked with recently are purchasing bank owned or short sale properties. It’s not that the loan process is any different than before, it’s just that there are enough “curve balls” to throw the process off track. That is why your lender needs understand your situation exactly. This is especially the case given tighter lending standards and the inventory of homes currently on the market.

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Tags: bank owned, commitment letter, short sales
Categories: Mortgages, Pre-Approved, Real Estate