Selling your home as a short sale can be a stressful situation. It is often the result of financial hardship and is never an easy decision to make. You put your home on the market and hope for the best. Lucky for you, the market is booming with buyers so your Realtor is able to negotiate a great contract. Lenders require an offer to purchase as part of a complete short sale package, so this is often the final piece of information needed to initiate the process.
The problem is, that due to the potentially lengthy process of a short sale, the buyer may not wait around until you receive an approval from your lender on the sale. Since you’ve most likely taken your home off the market and made plans to move, this can put some sellers into a tail spin. So, what does happen when a buyer backs out of a short sale contract? Depending on how far along you are in the short sale process will determine your options.
Before Short Sale Approval
If a buyer backs out before the short sale has been approved, many short sale negotiators will wait to alert the lender, as this will delay the process of getting an approval. Since nearly all short sales have backup offers in place (including yours), you will simply move to the next offer down the list, let them know they’re now in first position, wait for the approval, then negotiate your approval with the new buyer.
After Short Sale Approval
If a buyer backs out after a short sale approval, you are most likely under contract and moving along with your due diligence period. Buyers may back out based on due diligence, appraisal, or financing at this point, just like any other contract. If it’s within the guidelines of the contract, they’re free to do so. If it’s not, you’ll get to keep their earnest money deposit as damages. In either scenario, if the buyer backs out, you will need to have any subsequent offers approved by your lender, but the timeline for this should be much less, as they’ve already reviewed all of your information, and you and the new buyer already know what their approved amount is. The bottom line is, don’t stress. These things happen during the process and it doesn’t mean everything is for naught. It’s a hiccup, not a derail.