Short sales can be a unique approach to buying a Charlotte, NC, home for sale. They're also beneficial for both sellers and lenders because short sales allow them to save time, money, and other resources. All three could otherwise be lost in a foreclosure procedure before selling the property altogether.
The short sale process, however, is often tricky and time-consuming. You need to prepare for everything that could come with this type of purchase. It takes even more patience than buying a house in good condition, but the result can be well worth it.
One of the most significant advantages of purchasing a short sale is that you are more likely to get a better deal than you would from a typical home for sale. Most sellers must understand that they need to have the house sold because they can no longer afford it, and if the short sale falls through, they'll be facing foreclosure.
Several banks offer buyers of short-sale properties preferential financing terms to make the sale more appealing. The lender may provide a cheap interest rate or other buyer-friendly terms to get the property sold and avoid additional costs.
A short sale can result in a terrific price on a home, but it usually requires a lot of perseverance, patience, and a lot of luck. Before buying a short sale, make sure you understand what you're getting yourself into. After reading this guide, you'll have the knowledge you need to handle a short sale and evaluate if it's the best option for you.
What Is a Short Sale?
In real estate, the term "short sale" refers to a transaction in which a financially challenged homeowner sells their home for less than the amount owed on their mortgage.
The property is purchased by a third party (not the bank), and all proceeds go to the lender. The lender has two options: forgive the outstanding sum or pursue the homeowner through a deficiency judgment, which forces the homeowner to pay the lender the difference in full or in part.
A short sale is not the same as purchasing a property at a foreclosure auction or one that the bank owns outright, sometimes known as an REO or real estate-owned property.
If a home's value has dropped and the mortgage holder owes more than the home is worth, a short sale is only possible with the lender's agreement. In this case, the homeowner has negative equity and may be forced to sell the property.
Although this may be a less-than-ideal situation for the lender, it is generally a better option than foreclosure, especially if the difference is forgiven. A short sale is a mechanism for a homeowner and their lender to get out of a bad financial situation by suffering a loss; as a result, a buyer can typically profit from the deal.
What Are the Advantages of a Buyer?
Short sales offer tremendous benefits to all parties involved. When a seller owes more than the home's appraised value, they might be able to escape from under an underwater mortgage. There is a benefit for the lender as well. After all, the lender is not required to go through the foreclosure process. There are multiple benefits for buyers of short-sale properties as well.
- Fair Market Value Purchasing
The homeowner does not have the last say in whether or not a short sale is approved. Their mortgage lender must agree to accept the home's fair market value rather than argue the outstanding debt needs to be paid. The lender will assess the house and compare the appraised value to the buyer's offer. If the sale is near completion, the lender may authorize the deal rather than foreclose or counteroffer for a higher price. Even if the lender counters, the buyer can usually get the house close to market value. If the buyer had to cover the entire amount the owner still owes on the mortgage, they would be overpaying.
- Price is Discounted.
Even though the short sale property will be priced at market value, the lender is eager to sell to reduce the bank's losses. As a result, purchasers can frequently obtain a better price on a home than in a traditional home transaction.
- Market with Fewer Competition
Short sales are significantly more challenging to complete than standard sales due to the lender's involvement. Most purchasers are wary of short sales because they are unfamiliar with the process. As a result, there is less competition and a better likelihood of receiving and accepting an offer when there are fewer potential buyers.
- Lender Financing
If a buyer's credit is good, they may not need to look for a mortgage. The seller's lender may fund the mortgage to speed up the sale. Since the lender often already has all the buyer's financial information, swiftly closing can happen. In addition, the lender may offer enticing financing to help finalize the purchase. This allows them to continue collecting mortgage payments for the property without interruption.
- Getting a Sales Price Guarantee
A short sale can take a long while the buyer waits for lender approval. However, when a buyer offers a home, the sales price becomes "locked in." The buyer can still buy the house for its appraised worth, even if the real estate prices increase while they're waiting for loan clearance. If the market continues to strengthen, this could result in the buyer having a property they can later sell for a profit.
Common Mistakes Short Sale Buyers Should Avoid
- Choosing to Skip the Home Inspection
A home inspection can help you spot problems you might overlook, such as essential repairs or maintenance. You may decide to get out of the agreement if you discover a serious flaw. If the inspection reveals a problematic issue, it's better to have a contractor or house engineer on hand. They can provide you with helpful information about the cost of repairs, which will help you make a more informed decision about the sale.
- Leaving Insufficient Time for Closure
In normal circumstances, closing a property can take time, and closing on a short sale often takes even longer. Make sure to account for the delay in your preparations.
- Not Paying Attention to Legal and Insurance Information
A typical disclosure statement usually reveals whether a home is located in a flood plain or has undergone any unpermitted renovations.
However, bank-owned properties are frequently sold as-is, with no disclosures, necessitating additional investigation on the buyer's part.
- Getting Easily Attached to a Bad House
It's easy to fall in love with a home if you begin daydreaming about the life you'd be enjoying there. You must, however, keep in mind that you are conducting a business deal.
How Long Does a Short Sale Take?
The length of time it takes to complete a short sale varies greatly. The time it takes to close also varies depending on where you live. If numerous lenders are involved, the process could take much longer.
That being said, the average time is 60–90 days. However, that is simply an average since some short sales will take less time and some will take longer. By requesting some information from your agent before making an offer, you may be able to shorten the time it takes to be approved.
What's a Good Strategy for a Buyer Making an Offer on a Short Sale?
Although the procedures in a short sale are pretty similar to those in a conventional transaction, the process is more complicated due to the lender's involvement.
A short sale places the deal in the hands of the lender, making the procedure more time-consuming and complicated. The key differences between a short sale and a standard sale can be illustrated in six steps.
Step 1: Get Financing Approval
As with any house purchase, the first step is to get approved for financing. The lender will want to make sure the new buyer is financially capable of purchasing the property. While getting pre-approved before making an offer is generally a good idea, it's especially critical in a short sale.
Step 2: Hire a Real Estate Agent and Start Looking for a Home
Finding a property takes time in any situation, but it's even more difficult when your heart is set on a short sale. Instead of looking through all of the listings in your target area, concentrate your search on pre-foreclosure home listings. You can also conduct a public records search by contacting the local county court.
Short sales can be challenging to navigate, but an experienced real estate agent like Nancy Braun can assist you. Her company, Showcase Realty, can help explain every step of the home-buying process, including finding short sales.
Step 3: Do Your Due Diligence
You will want to learn everything you can about the property before making an offer. To determine the home's true value, start by looking at comparable transactions in the neighborhood.
Before you buy a short sale home, make sure you're aware of anyone or anything who might have a claim on the property (these are called lienholders). This means you should double-check for any other liens on the property. Since short sales are deals in which the seller owes the lender more money than the home is worth, you'll also want to figure out how much the seller owes the lender.
Step 4: Make An Offer
When making an offer on a property, you must consider what the lender will think of your offer based on your knowledge of area home prices. You may be considering a short sale to save money on the house. Bear in mind that the lender is still attempting to reclaim as much of the outstanding mortgage debt as possible. If you want your offer to be accepted, it should be close to the home's market value.
Be wary of fraudulent behavior when looking at houses. If the seller offers you to pay money under the table in exchange for the chance to apply for a short sale, say no and report it.
Step 5: Get Your House Inspected
Short sale homes are offered "as is," which means you won't be able to negotiate a reduced buying price if the house has flaws. However, before you decide to close on a home, you should still know the state of the property. While the vendor is obligated to disclose any known flaws, this information might sometimes slip through the cracks.
Get a home inspection to know what you're getting into. If repairs are required, investigate the costs or obtain estimates to determine whether the home will be financially viable in the long run.
Step 6: Complete the Transaction on the Property
You must ensure that the lender and any other lienholders are prepared to release the collateral even after the accepted short sale. The longer this procedure takes, the more lienholders there are.
The seller must additionally supply the following documentation for the sale to close:
- Hardship Letter
- Evidence of earnings and assets
- Liens are listed below
- Analysis of the market in comparison
Assuming the approval letter and documentation are in order, you'll be able to close on the property, receive the keys and move in.
Can You Negotiate a Short Sale?
Negotiating a short sale is possible, but it is a time-consuming process. Rather than the seller, the lender must also approve short sale talks.
The process is made a little more complicated since a third party also needs to be appeased. Buyers will need to know how to interact with homeowners and lenders to negotiate a short sale.
Do FHA Loans Cover Short Sales?
To be authorized for an FHA short sale, the seller must be at least 31 days late on his mortgage payment or default. After a certain number of missing mortgage payments, a borrower is declared default, as stated in the loan papers.
To complete the transaction, the buyer might obtain a new FHA mortgage loan in a short sale. These transactions must be conducted at "arm's length," which means the buyer has no known ties to the seller, removing the possibility of a conflict of interest.
How Can I Speed up a Short Sale?
Make your offer as contingency-free as feasible to expedite the closing of your short sale. Include a copy of your mortgage approval with your offer. Make a big deposit to demonstrate your good intentions.
More so, within five days of closing, do a final walk-through. Doing so confirms that all appliances and fixtures left in the house are still there and the property is in the same condition as when the lender approved the offer.
Who Are the Best Short Sellers?
When picking a Charlotte, NC short sale agent, expertise is the most critical factor to consider. If you use an agent who lacks the essential knowledge, the short sale could result in foreclosure, which you want to avoid. You will be the one who suffers in the long run if the short sale agent lacks experience dealing with loss mitigation and negotiation.
The good news is that our team at Showcase Realty has completed short sale transactions for both sellers and buyers. Our mission is to provide high-quality, innovative, and extraordinary real estate services to our clients. We understand the intricacies of the short sale procedure and the importance of meeting deadlines. We maintain the highest levels of honesty and ethical business practices, and we act with honesty and integrity at all times and in all situations.
Is Buying A Short Sale Right For You?
You must evaluate your needs and the characteristics of the property you're interested in before deciding whether or not a short sale is good for you. Make sure you understand the state of the house and how much it will cost to fix it. Saving money on the purchase price is useless if you spend extra to make the house habitable.
A short sale prevents a homeowner from losing their home to foreclosure. The housing market's fragility also allows a home buyer to purchase a home for less money than it would usually be worth. Let Nancy Braun, the best real estate agent in Charlotte, NC, help you get the best deal possible call her at 704-997-3794!