By now everyone has heard of Short Sales. Just a few years ago, it was a word rarely used in Real Estate. But today it is a widely used term......sometimes even mis-used. Let's review what a Short Sale is. A Short Sale is when a lender agrees to allow a seller who has a financial hardship to sell their home for current market value...taking a loss on the original mortgage and allowing the homeowner to sell their property "short".
So what does this mean for a buyer buying a Short Sale. Here are some tips!
1. If you are a buyer.....before entering into a short sale contract, ask your Realtor to do "due diligence" with the sellers agent if property is listed. Find out how many liens are involved. This could make a difference of 60 days or 6 months waiting time for the seller to receive an approval to sell short. Each lien will need an approval. Short Sales have come a long way since last year and the wait time has decreased on some, but there are still those difficult ones that can take time..and here is a footnote, if there is an IRS lien or a divorce involved it can mean increased time for approval.
2. Make sure the seller is not trying to do a loan modification at the same time they are trying to sell. Some sellers get desperate and may be trying everything. While having their property listed, they may also be trying to do a loan modification. Sometimes the sellers lender does not know what the leftt hand is doing. If the seller gets the loan modification, they will cancel the short sale ad you are back to square one. Hey, it happens.
3. Most short sales are sold as-is....so a buyer will need to do a Home Inspection early...to see if this is a property that is worth the wait. I have seen buyers wait 6 months for the sellers approval and then do the Home Inspection, only to find that the property was not worth it.
4. Check the comparables.....make sure your Real Estate Agent check the sellers agent comparables to ensure the listed price isn't one that is used just to lure buyers in for a quick contract to keep the sellers home from going into foreclosure. Example: You are pre-approved for only $150,000, and the short sale list price is $150,000, however the area comparables say the homes are going for $180,000...the sellers lender may come back to ask you to increase your offer to $180,000..but you can only borrow $150,000...causing you to have to walk away after waiting a long period of time. Know the comps of the home you are buying!
5. Make sure the seller will move. Some sellers get real comfortable after realizing that it could take months or years for their home to actually foreclose. During that time, many are paying no mortgage and some "dig their heels in" and wait until the very last moment to move out. Hopefully you will not get one like that!
6. Patience....it takes it..but the end result can be worth the wait.