A short sale is when a Lender agrees to accept a mortgage payoff amount for less than what is owed. In a short sale, the homeowner generally cannot continue to make their mortgage payment.
Although short sales can be appealing because they are usually priced below market value, there could be some drawbacks. Consider the following when deciding whether or not to put an offer on a short sale.
Does Your Agent Have Short Sale Experience?
If your agent has no experience with short sales, hire a new agent that does. Agents with short sale experience know how to expedite the transaction while protecting your interests. Agents with short sale experience also know how to deal with the Lender once an offer has been made. The Agent should send your loan preapproval letter, a copy of your earnest money deposit, and a list of comparable sales that support your offer on the home to the Lender.
Do You Have Time?
Short sale transactions aren't speedy and require time for the Lender's approval. Some short sales can take a year or longer to close. Some Lenders submit short sales to a committee, but most can make a decision within two to three months. Get a name and phone number for the appropriate contact at the Lender. Don't send an offer blindly to a department. Consider giving the Lender a timeline to respond.Even once an agreement is struck, there is still no guarantee the short sale will go through.
Are You Willing to Negotiate?
In many cases, the Lender will reject your initial offer and come back with a counteroffer. Determine beforehand what your absolute highest limit is, and don't be afraid to walk away if the Lender won't meet your figure. Homes that are priced below market value will receive multiple offers. You want to make an offer that will beat the competition yet still be below market.
Did You Check the Public Records?
Make sure the Lender has already approved the short sale. If the seller has not actually gone into default yet, the bank may not be interested in a short sale. The bank may also not be interested in a short sale if it can get more money by foreclosing. Also, ask the seller or his agent what liens are on the property and which Lender is the primary lien holder. Your agent can also find out who is on title, whether a foreclosure notice has been filed, and how much the Lender is owed. This is important because it will help you to determine how much to offer. If there is more than one mortgage loan on the property, it could be problematic, and at the least, much more time consuming.
Have you Weighed the Pros and Cons?
If you are considering putting an offer on a short-sale, proceed with both caution and patience. Some short sales are priced below market value, creating a great opportunity for buyers to purchase a home when they otherwise might not be able to afford one. On the other hand, many banks have little interest in selling homes below market value. The listing price could merely be the amount the listing agent thinks the bank might accept, rather than what the bank has agreed to. If the home is priced far below market value, the seller may be trying to generate a bidding war, which could just be a waste of time.
Because it can take the Lender so long to reply to your offer, it's in your best interest to keep looking at other houses while you wait. Don't be afraid to proceed with purchasing another home if it's in your price range and is a simpler purchase. Make sure your agent writes a short sale purchase agreement to allow you to retain flexibility. However, short sales can be a great deal for some buyers and do occasionally close successfully.
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