What are short sale properties?
On a recent home buyer tour with a client I discussed the property details of the home I was showing them and the short sale market here in Gilroy when my buyers asked me what a short sale was. I realized at that moment that many homeowners don't know what the concept "short sale" means even though I assumed the word was self-explanatory.
A short sale means that a homeowner sells the home short of the amount (s)he owes on the mortgage. In other words: the value of the home is less than the debt on the home.
There are a few points related to short sales home buyers need to be aware of:
- Just because the home is advertised as a short sale doesn't mean that the lender approved the short sale. You hope they did. Check with the listing agent if the lender approved the short sale on the property you are interested in.
- A very attractive list price? Just because a home is advertised with a list price substantially lower than the surrounding properties doesn't mean that the home will sell for that amount; the sellers may want to entice multiple offers to drive the sale price up.
- If the sellers accept your offer that doesn't mean the offer is valid; the lender will have to accept it too. They may not accept an offer which is too low compared to market value of surrounding similar properties.
- Short sales are more difficult to close than bank owned properties or "traditional" sales meaning sales that aren't short or bank owned. In our market 191 homes were in escrow (under contract) last month (124 were short sales and 39 were bank owned) but only 16 short sale properties and 17 bank owned properties closed.
- Earnest money (deposit) doesn't have to be placed in escrow after seller accepts buyer's offer; a copy of the deposit check is often enough. As soon as the offer is accepted by the lender(s) the deposit needs to be placed in escrow and the process continues in escrow like any other property.
- Short sale properties are sold "as is". I highly recommend buyers to hire a professional to conduct a home inspection. The purchase of a home warranty is always a good idea.
- Short sales generally take a few months to close.
Check with your state's short sale regulations; they may or may not be the same as in California.
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