The 411 on Short Sales
If you are in the market for a new home, you may come across homes on the market that are labeled as a “short sale”, “short pay” or “pre-foreclosure”.
These three terms all mean the same thing: the seller is upside down on their mortgage and is attempting to negotiate a deal with the lender in the hope of avoiding foreclosure.
In a short sale, the lender will agree to pay less than the amount owed on the mortgage but the transaction benefits the bank by allowing it to avoid repossessing the home in foreclosure, which is expensive and time consuming. It also benefits the seller by avoiding the negative credit ramifications of foreclosure and the potential bankruptcy that can accompany it.
If you are interested in purchasing a short sale, you need to know the following. Unlike a foreclosure, in a short sale the bank does not own the property; however the bank must still approve the sale since they are the ones taking a loss on it. Short sale transactions are much more time consuming and patience-testing than foreclosure transactions.
In most cases the property for a short sale is being purchased “as-is”. This being known, it is very important to make sure you have an inspection done. If the property inspector finds anything majorly wrong with the house that you as the buyer are not willing to take care of once it becomes yours, you still have time to back out of the deal.
If you put an offer in on a short sale house, make sure you are prepared to wait on the banks time. The bank can take up to several months even just to respond to your offer. If you are not prepared to wait, looking at short sale properties may not be in your best interest.
A huge advantage to the buyer of a short sale is that it is unlikely the short sale property will be trashed or ransacked, like a bank owned property would. Usually the owner is still living in the home and at the most there may be deferred maintenance because of the seller’s financial situation. Furthermore, because the property is still occupied, it doesn’t have the chance to suffer from ruthless people vandalizing the property.
When you are in the market, make sure to look at all types of homes. Standard sales, foreclosures and short sales are all on the market and it is important to view all of these. Don’t assume a property is a great deal just because it is a short sale. Do your own comparable market analysis.
If you have found your perfect home and it does happen to be a short sale property, make sure your agent is experienced with short sales. Because these are a complex and different type of transaction, you will want as much knowledge on your side as possible. Although the bank is primarily in control, a listing agent who knows the ropes may be able to expedite the transaction.
Since short sales are sort of a gamble, it is important to keep your search going. Don’t get your heart set on the short sale house you’ve put an offer in on as it may take the bank longer than you have time for to reply to your offer.
The bottom line with a short sale property is to proceed with caution and patience. Even with a complete understanding of the process, the best agent in the world and an enormous amount of patience, the bank will not always cooperate. Hope for the best and prepare for the worst. Short sales can end up being a great deal for buyers and will occasionally close successfully.