The process of Buying a Short Sale (our experience with the Dexter House)

In the process of moving our blog over to Squarespace recently, I found a few long-lost draft posts that I thought were still relevant. This was one of them…


Today we’re rewinding back to 2015. We were living in the Ravenna House and trying to buy the Dexter House, which was a short sale. When I wrote this post (in January 2015), we were stuck in the middle of the closing process and there was no end in sight. Quite honestly, we were half expecting the entire transaction to fall apart.

It would ultimately take us 6 months to buy the Dexter House and we finally closed in April 2015 and started the renovation immediately (you can tour the finished house HERE). Today, let’s rewind back to early 2015, back to when we were midway through this short sale process and uncertain.

The following post was written in January 2015…

January 2015

I was hoping that I'd be sharing interior pictures of our new (old) house - should I call it fixer #4 or the Dexter House? - with you guys today.  But honestly, we're still not sure if it's ours.

Hopefully we'll get the final word from the lien holders in the next week or two, but I've said that before. In the meantime, let's talk about the process of buying (or perhaps not buying) a short sale.

the process of buying a short sale // the Grit and Polish

Excuse the rough quality of the iPhone pic.  Hopefully you can still see some of that old-house charm and gritty charisma in the house.  This little Spanish beauty was built in 1905, has 3 beds and 1 bath, a tiny backyard courtyard and boasts an original kitchen. I was smitten. The house is only 1 mile from Seattle's bustling neighborhood of South Lake Union and has city views from the front door.  It would make a great little rental for us. Garrett and I were really excited to refresh the main floor and put a second unit in the basement. The only hangup...

It’s a short sale.

This house was our first (and probably last) foray into short sales, and I've been surprised just how slow and ridiculous the process has been. And even though I don't know the end of the story yet - the we did or we didn't get the house! ending - I'm going to walk through the process. Because it's kind of an interesting story if you're into this kind of thing.

the process of buying a short sale // the Grit and Polish

but What exactly is a short sale?

A short sale is a property that is valued below what is owed on the property. The bank and/or lien-holders agree to take less than the amount owed to them, which denotes it as a short sale. In this case, the previous owner had over $700k of debt on the property and it was listed in the mid-$400’s.

our exhausting experience buying a short sale

We toured this house on a sunny day in September 2014. It was old and charming and full of deferred-maintenance with an illegal duplex in the basement. I was smitten. And with a list price in the mid-$400's, the numbers worked out for us to buy this as a rental (note: we didn’t originally plan to live in the Dexter house but by the time we closed on the property we had changed our minds).

the process of buying a short sale // the Grit and Polish

In early October 2014, our offer in the low $400's was accepted on the house. We had gone back and forth with the listing agent and trustee (a coordinator of sorts for the lien holders) but our real estate agent was able to work them down $40k from the asking price. Quick backstory here, the previous owner had spent $650,000 on this house in 2009, 100% financed, and had an additional loan out on the property.  So you can see just what kind of loss the banks (aka lien holders) would be taking on this short sale by selling it to us for $200k+ less.  

Trustee acceptance

Once our offer was accepted by the trustee, we secured traditional 80/20 financing with our broker and did our own home inspection. Unfortunately the utilities had been turned off by the bank (because squatters had been breaking into the house and using the water), so our loan was contingent upon the utilities being turned on and deemed functional. We paid somewhere around $500 for an appraisal of the property (required by the lender), which came in at just above our offer.

The trustee moved the property to pending.

Then we waited.

And waited.

the process of buying a short sale // the Grit and Polish

Bankruptcy proceedings

Then a court date was set. This would be a good time to tell you that the seller was filing for bankruptcy at the same time as selling the house. So the sale of the house was contingent upon the bankruptcy court's approval. They did so on December 5.

bank/lien-holders review

The next hurdle was the bank/lien-holders review. While a trustee is the point-person on the transaction, the bank/lien-holders has the final approval. So just because the trustee had accepted our offer, didn’t mean that the bank would. While we waited to hear from the lien-holders, we also had to submit updated verification of downpayment funds and loan prep-approval to the bank via the trustee. Our broker also requested updated paystubs from Garrett and I to keep our loan approval current.

Finally on January 7, three months after we made our offer, we heard through our agent that the bank had reviewed the deal. They verbally countered over the original asking price. That’s right, they countered the trustee-approved offer and wanted more money than the house was even listed for. Who counters over the listing price? Well apparently banks do.

At this point we were exhausted with the process and said no. We also had the good sense to submit contractor repair bids (totaling over $40,000) to justify our low offer. Since the banks counter was a verbal counter, we were still technically under contract for the approved offer from October.

the process of buying a short sale // the Grit and Polish

The trustee thought the bank would reject our offer. Our agent thought the bank would reject our offer. But all we could do was wait. And wait we did.


a happy ending

That’s where the post ended, but here’s the happy ending to the story: on January 28, we finally got verbal approval on our original offer from the lien-holders! Of course the saga wasn’t over yet. It would be another few months until we go approval to close on the property.

But in April 2015, 6 months after our offer was initially accepted, we closed on the Dexter House. I wrote our first post about the house shortly thereafter and then we launched into a full-house renovation on the property. We filmed our first sizzle for HGTV there, completed the renovation, and decided to move in. We had our second son at home there and decided against renovating the basement, deciding instead to put the money into a fifth property (which would eventually become our Farmhouse). We still own the Dexter House as an Airbnb rental.

And in case you’re debating a short sale, here are a few thoughts I wrote down back in 2015…


Short sales suck.  Let me put that to you in list format:

Why short sale's suck:

  • They take forever to close

  • You are on the hook for additional fees, like the trustee’s fee, which can’t be financed with the home purchase (fees amounted to ~20k for us)

  • The seller will not do an inch of work (like if you loan requires active utilities, you better be ready to pony up for the back fees at the utility company in order for them to turn them back on)

Why short sale's are good:

  • They scare other buyer’s away

  • Yeah, that's it.

the process of buying a short sale // the Grit and Polish

I'm not saying we'll never do another short sale again, because never say never when it comes to old houses and moi, but it was definitely a worse experience than a traditional sale. And you may be wondering if we got a better deal on the property because it was a short sale and the answer is…maybe? It was undervalued a bit but that margin shrank when you consider the extra fees associated with the purchase.

My advice regarding short sales, buy them because you love the house, not for the “deal”.