If you're a home buyer, adding short sales to your list of homes to look at might be a good move - and then again, maybe not.
Short sales are homes that are generally worth less than what the seller owes on the home. Purchasing a short sale house involves a process of negotiating with one or more mortgage holders, and possibly other involved parties, in an attempt to obtain their agreement to release their lien position in exchange for less than they are owed. If successful, most parties benefit to some extent:
· The buyer gets a home at a price less than market value - and sometimes significantly less.
· The seller avoids foreclosure proceedings and could wind up with less severe damage to his credit rating.
· The lender also avoids the cost of foreclosure and may be able to resolve a problem loan more quickly.
However, for home buyers, there are some significant difficulties and a lot of unknowns to be dealt with in a short sale:
· Price uncertainty - getting to what the actual negotiated purchase price will be is the major focus of the negotiation and requires the agreement of everyone. While it may be possible, with some lenders, to negotiate the settlement price ahead of time, this is rare. The list price in MLS is generally a Realtor's best guess at the final price, but it could also be a lower price designed to entice more bidders. And the more parties involved in the negotiations, the more room for failure to agree.
· Time - negotiations can take several months before a price is agreed on, and again, generally the more parties, the longer this time will be.
· Deal uncertainty - it is estimated that only somewhere around 20% of all short sale contracts actually close - there's a lot that can go wrong during the negotiating process.. The final price may not be as great a deal as the buyer anticipated. The buyer's interest rate lock may expire, or they may find a better home and just cancel the deal. The seller may change their mind. Or one of the mortgage holders may just refuse to negotiate.
Typically, short sales seem to be geared more toward the real estate investor, who can spend the time necessary to wait for a good deal and doesn't have a strong emotional component in his purchase decision. But it isn't uncommon to see ordinary buyers involved in short sales.
Is this something that might work for you? Are you prepared to be patient and flexible? Do you have the time to invest in a potentially non-productive home search, or do you need to buy a home in the immediate future? And are you prepared to deal with the disappointment of not being able to buy what looked like the perfect home? Only you can answer these questions, and it's best if you answer them before you add short sales to your list of candidate homes.
But if it seems like a good idea, click here to take a look at short sale houses in Fort Collins, or here to see short sale houses in Loveland CO.
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