To buy a Short Sale or not to buy a Short Sale?

More short sales have popped up in San Francisco's southern neighborhoods including SOMA and South Beach. But should you buy a Short Sale, in San Francisco or anywhere else? The answer - it depends on your time line and your goals.

Short Sales take a very long time to work out. You'll always see the statement "subject to lender approval". With banks overwhelmed by short sales and the banking crisis, it takes time just to get to files. Worse, you have to get the file started, and that often doesn't happen until an offer is received. And it definitely doesn't get started until the Seller complies with all the requested information in the "short sales packet". The problem with that is Sellers aren't exactly anxious to share their bad financial news, and banks always seem to have more to ask them even months down the line.

If there's a 2nd bank, you have to go through all of the above again... but worse, you have to negotiate a settlement with the 2nd lender who will be forced to accept as little as $1,000 to agree to lose a lot of money (in San Francisco often $100k to $200k) so they aren't anxious to agree and will often hold up negotiations for weeks at a time - partly again because they are overwhelmed with files.

So... should you as a San Francisco buyer buy a short sale? If you can wait 3 to 6 months... even 9 months... just to get a response to your offer, then "yes", you're likely to get a great deal because so many others won't wait. But if you need a place to live now, the answer is "no". Not only do you have to wait up to 6 months, the bank may turn your offer down. It may also take so long that the home ends up in foreclosure. Or you may simply get beat out by a higher and better offer.

To help avoid some of the above problems with San Francisco short sales, I recommend not bothering to deal with "new to the market" Short Sales. If the Short Sale home has only been on the market for 60 days or less, wait. Around the 45 day mark you can check in with the Listing agent for an update on the bank's approval process, and how many, if any, offers they have received. If there's an approved price (unlikely since it usually takes 90 days) you know what you have to offer to win it. If there are 3 other offers at that price, you know that if you over-bid that (which is still likely to be under the actual market value) you're most likely to be the winning bidder.

But chances are you'll get an update from the listing agent that they are still waiting on the bank, and that the only offers they got so far are ridiculously low. So low that the bank would rather foreclose than work it out. With that, I recommend calling every one to two weeks (more if the updates are positive, less if there is clearly no progress with the banks).

So - buy a short sale if you don't need to move and have a very long time line... or if it's been on the market around 90 days (and you'll still probably have 60 days before you can get into the home). Don't buy if time is of the essence.

By the way, if you want to buy a Short Sale in San Francisco, use the "Homes via Email" button on the left, use the form to select your basic home criteria - and then write into the "comments" area that you "only want short sale listings". Short sales will be included in a general search, but if you only want short sales in San Francisco, just write that in. Keep in mind, this is a San Francisco only service. Bank owned "REO" properties are also a searchable feature in the San Francisco MLS. Again, they will be emailed to you in any regular search, but if you only want to see REO properties, use the comment section. And obviously if you want both Short Sales and REO's write that too.

If you liked this article you may also be interested in:
REO search on the San Francisco MLS
Short Sales in San Francisco
First Time Home Buyer - where do I start?