With Short Sales being a higher and higher percentage of the market and Short Sales undoubtedly being the Market of the Moment for some time to come...there are many things buyers need to be aware of with these transactions.
Here are my Top 10 Things Buyers Need to Know about Buying a Short Sale:
1. Of course, I think we all know this one by now...even buyers. Short Sales are not short! They are a long and tedious, often times frustrating process for everyone involved. There are a multitude of reasons for this, but some of them are - the workload of the negotiator, negotiations between the 1st and 2nd lien holders, and waitng for investor approval. Imagine 1 short sale having all of these issues! Remember Patience is a Virtue....
2. Just because the seller accepts your offer, it is not accepted until the bank approves it. And the bank can and often times does change some of the terms. They generally will not pay for home warranties, so that is often countered out of the contract, along with sometimes raising the price, changing other closing costs and dictating the closing date.
3. Speaking of the closing date, even though you have waited around for 60 - 180 days to get the bank's approval, you will more than likely have to close escrow once it is approved in 30 days.
4. Short sales are sold AS IS...the seller doesn't have any money for repairs or replacement of items. You have to remember, they are losing the house if this doesn't work out and the seller is receiving no cash from the transaction.
5. It is always important on any transaction for the buyer to get a professional home inspection. Because short sales are sold AS IS, I always recommend my buyers not only have a home inspection done, but also a termite inspection and a roof inspection. It is important for you to understand exactly what repairs you are going to need to make after you move in.
6. It is important for you to have your agent find out the listing agent's track record on short sales. If they are not getting their short sales approved, why do you want to wait around for another one? There are many good agents out there right now getting approvals on their short sale listings...these are the ones you want to look at. Ask your agent to call and interview the short sale listing agent before you waste your time on an offer. If your agent won't do this, ask WHY NOT?
7. Make sure your agent runs comparables on the short sale listing. Checking comparables will also give you a better knowledge of what price homes in the neighborhood are selling for and ultimately make you a more informed homebuyer. Also it gives you and your agent a better idea of if you might have appraisal issues on your new home appraisal. If you have issues on the price once the existing lender has accepted the short sale, it will just cause MORE delays. And remember the existing lender is having an appraisal and maybe a BPO (Broker's Price Opinion) completed prior to accepting the short sale, so they will know they value.
8. Don't get your hopes up for just one property. If you fall in love with it, you may very well be disappointed. In addition to the bank not accepting the short sale, there is a clause in our California Residential Purchase Agreement on the Short Sale Addendum - Clause F - that reads "Unless otherwise agreed in writing, Seller may continue to market the Property despite acceptance of Buyer's offer, and to present to Short Sale Lender(s) any additional offers that are received on the Property." This means after waiting around for 2-6 months on a short sale property, another offer may suddenly come in higher than yours and get presented to the bank for approval. Make sure to talk to your agent about this and have them find out how the listing agent will be handling offers.
9. Second lienholders on short sales are sometimes coming back now and asking for more money than the first lienholder will allow. It is not uncommon on a $100,000 second loan, for the first lienholder to offer only $3,000 to the second lienholder. If the second lienholder does not agree, the transaction can be dead. However, sometimes the 2nd lienholder and the listing agent will ask for the buyer to pay the differnce...I recently had one that asked for my buyer to pay an additional $4,000 in cash to them. Remember, the seller does not have any money....so who is going to pay it? You, the buyer? If this occurs, you need to talk to your agent about it and then ask your lender if this will work for your financing. It doesn't work with all loans...so make sure you ask.
10. Short sales are very competitive in our area. With inventory low, the short sales are now approximately 65% of our market and because they are priced competitively, they are attracting many buyers these days. It is not uncommon for us to receive multiple offers the first week we put a new short sale on the market!
Short sales can be a great opportunity to find your new home at a competitive price! However, a Short sale could also be a major headache that lasts for months if you and your agent do not pay close attention! Keep on top of things even if the listing agent is also doing so. I hope these tips will help you in the process!
So now, what about the local market? Well, we have been seeing multiple offers on everything under $300,000 in the Elk Grove area for the past few months....inventory is currently low. Our prices have increased a little each month for a few months now, but they are still unbelievably low! Mortgage rates are still at an all time low, so what are buyers waiting for? The first time home buyer tax credit is only available until April 30th, so NOW is the time to get out there! Don't wait any longer...
For more information on the Elk Grove area and the Elk Grove real estae market, check out Elk Grove Real Estate on Facebook and watch our monthly TV show on Good Day Elk Grove.
To check the value of your home, go to www.AllElkGroveHomes.com.
If you are a first time home buyer, the time to buy is NOW...Don't miss out, call us today at (916) 230-0371 or email us at Lori@ModeandDurhaM.com.
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Lori Mode of Keller Williams Realty, Elk Grove
DRE License #00935148
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