Should I Buy a Short Sale?

Should you buy a short sale?  In today’s market a real estate short sale can be a valuable opportunity to save big on a home depending on the neighborhood.  Many distressed properties are hitting the market and making it even more compeitive for short sale pricing, making the bank sometimes give into a lower purchase price.

Short sales are where a property is sold for less than what is owed on the property.  The lender forgives the debt and takes the loss.  Since the bank won’t be receiving 100% of the their loan repayment, there is a special approval process on buying short sales which can lengthen or cause the process to be longer.

The process of selling a short sale property begins like traditional sales, in which the buyer and seller are negotiating the written offer.  But there is an addition to the contract, stating “Subject to Lender Approval”.  Since the bank is losing the money, they need to approve the final price for the transaction.

Sometimes getting approval from the lender can be a time consuming process, but other times it can be surprisingly quick.  Be ready for anything with short sales.  Your offer could be rejected.

To guide you through the complicated process, picking a real estate agent familiar with short sales may help may it easier for you:

1. Closing dates could be delayed – It is inveitable in a short sale that a closing may be delayed past the typically normal closing from 30 to 45 days.  It could take much longer than that.  It all depends on the bank.
2. The offer is rejected – The bank may receive multiple offers during the long approval process.  Of course, they are likely to pick the best one.
3. Multiple liens on the property – Many homes going through short sales have multiple mortgages on the house.  If you have more than one to deal with, you are guaranteed that it will take longer to close the deal.  Both banks need to agree to payoff amounts.  Usually the first mortgage holder is paid back in full where the second holder is the one who gets the loss.  Thus, the 2nd mortgage holder will try to negotiate with the 1st mortgage holder to get something out of the deal.  If the bank doesn’t approve, the deal may go nowhere.  It takes both banks cooperation to close the deal.
4. There isn’t much you can do to speed things up – The agent is powerless.  All they can do is call the bank over and over and over again.  There is not much you can do to make the bank decide on the deal faster.  A lot of times they are already buried in a lot of short sales.
5. Is it a good deal? – Just because the home is being sold at a discount, doesn’t mean it is a good deal.  Make sure to research the local area.
6. Other fees and costs – Sellers are not responsible or likely in this type of short sale situation to take care of repairs.  The buyer’s agent commission may get reduced by the bank.