There is a lot of buzz in the Seattle media about short sales. So what the heck are they anyway, and how can they save you tens of thousands of dollars on a home?
Put simply, a short sale is when a home owner is trying to sell a house, but the proceeds from the sale of the house will not be enough to cover the loans currently owing on the home. So the seller will need to get bank approval once a buyer makes an offer on the home, because the bank will not get all of their money back when the home sells.
Why is this a big deal?
A short sale situation can be a big deal as far as the time it takes to close on the house. Because of the extra step of having to get bank approval, the process can take several extra weeks to several extra months to complete. Each bank has its own process for considering short sales and not all of them are very efficient. Part of the problem is the volume of short sales that many banks need to consider. There are a lot more now than a few years ago.
The time lines are a serious consideration. Take a client of mine right now. They are first time home owners who don't have a lot to spend on a home. They found a house they like but it is a short sale situation. They decided to move ahead with the offer. We agreed on terms with the seller, did an inspection and the offer went to the bank. The timeline has been delayed several times by the bank. First they told us a few weeks now it is looking more like about a month and a half. In this situation the bank has all the power and can take almost as long as they want to make a decision.
So why would anyone consider buying a home that is subject to a short sale?
Quite simply price! If a seller is not going to make any money on the sale of their home anyway, you can imagine they are much more flexible on terms and price of the sale of their home. If you are the only person making an offer on the home, the bank will need to take the offer seriously, even if you offer significantly less than the asking price for the house. In many Seattle neighborhoods, short sales represent some of the best deals around. In the case of my buyers, we will get the house for nearly $75K less then what the house was refinanced for just a year and a half ago. Well below market value. (I won't tell you the value of the home because the negotiation is still going on, but it is well below $300K)
In short (pun intended) there is no reason to be afraid of a home that will be subject to a short sale. In fact they may be some of the best values out there. Just be prepared for a longer timeline, a little more hassle and be sure to use an escrow company, mortgage company and if I may be so bold, real estate agent with some experience in short sales. You may just find that hidden gem at a bargain basement price.