What Is A Short Sale And Why Is The Price So Low?
We were looking online at homes for sale and saw what looks like a real bargain!! We know homes in that community usually sell for MUCH more and we'd like to jump on the opportunity before someone else gets it! And the marketing comments said something about "short sale, lender approval required". What's that about?
Motivated in Mason
We understand your excitement and of course we'd love to help....BUT there's a couple of things you need to know first!
First, a short sale is when a home is being offered for sale at a price less than the mortgage balance AND the seller isn't bringing money to closing to complete the sale. Typically, the home owner needs to demonstrate some type of hardship to the lender and the lender needs to agree to take less than owed (thus the lender approval required phrase).
With the real estate market over the last few years, there are many recent home buyers underwater or upside down on their mortgages. Current sales prices just don't cover the funding needed to complete the loan unless the seller can bring money to the closing table OR the bank is agreeable to shorting themselves and their investors.
Most times a short sale candidate seller that needs to move will find a REALTOR® that specializes in short sales and is intimately familiar with working with the banks and knowledgeable about the special requirements to complete the deal and still protect the seller. A short sale experienced REALTOR® is likely to know how to accurately price a home to get an offer that won't result in a "WHAT ARE YOU THINKING" type response from the lenders!
However, there's a risk when looking at homes listed for short sale. Sometimes a home is listed for far lower than "normal" sales prices. You may have found one of those homes that seems like an extreme bargain. Now assuming the home hasn't been wrecked and condition isn't an issue, an abnormally low price is often a red flag! Is there a valid reason for the price to be lower than the rest of the community OR is this a type of bait and switch?
Lenders don't always want to talk to the listing agent until they've got an offer to present, so the first order of business for the listing agent is to get an offer to open communications with the bank. A low price might be for real, or it may just be there to make some buyer the guinea pig for getting the true acceptable price range out of the bank. If a home is priced abnormally low, there's a good chance the bank counter (assuming they counter) will be MUCH higher than the listing price and more in line with current market values. We've watched homes appear in MLS at what we consider an abnormally low price, then later have their price INCREASE significantly. That's consistent with a rejected offer and a demand for offers closer to market value.
Now for you as a buyer there's obviously risk in pursuing short sales, especially one priced unusually low:
- The seller may not be able to get approved for a short sale, so no sale will happen.
- The bank may reject the price entirely, and if you were already towards the top of your affordable price range, it may now be out of reach.
- You may spend months waiting on a response (banks are notorious for being slow on short sale processing) and you've potentially skipped other home opportunities because THIS HOME is the one you wanted.
If you want to buy a short sale home, price needs to be more important to you than schedule. If being in a home in 30 days is critical, then going after a short sale home probably isn't going to work (although there are exceptions). If we think a home is a wild goose chase and you're being used as the bait to get the bank to talk, we'll tell you that. Whether to proceed from there is up to you, either way, we're here to help.
Serving Warren County's residential real estate needs,
Liz and Bill aka BLiz