With all the recent financial troubles daunting many American families, we've seen a huge increase in listings called "Short Sales." While short sales can represent a "sweet deal" for the buyer looking to buy a bargain - in many cases, they can be more trouble than they are worth.
WHAT IS A SHORT SALE?
A short sale is when a homeowner is unable to sell their home for enough money to pay off their mortgage. (This is either because they have been loaned more on the home than the market will bear, or because values in the area have decreased substantially.) Therefore, the bank agrees to accept less than the mortgage payoff in order to avoid foreclosure proceedings (which can cost the lender up to $60,000).
BEWARE - THE ASKING PRICE IS THE AGENT'S "BEST GUESS"
When a home is listed as a short sale, it is extremely rare that the lender has already been consulted in order to approve the list price. The listing agent will attempt to estimate an amount far enough below market value to attract buyers, which is still high enough to receive approval from the lender. For that reason, the asking price that attracts the buyer in the first place may not be the amount the bank will accept. In addition, it's not only unusual to negotiate less than the agent's estimated short sale price, but also fairly common to end up being asked to pay more than that price.
THE HOME WILL BE SOLD AS-IS
Before a buyer begins negotiation on a short sale home, it is important to know that the lender (who is paying all the fees in the transaction) usually will not make any repairs (including pest inspections or treatment, and home warranties). This means that any questionable items that come up as a result of a home inspection are for the buyers' knowledge only. However, it is imperative to go through with the inspection process, and leave this contingency as a "loophole" in case serious issues come to light.
THE CLOSING DATE IS ANYONE'S GUESS
It can take 2-6 weeks just to receive an answer from the lender on the original purchase offer! If there are two lenders involved (a "first mortgage" and a "second mortgage"), those two entities have to agree on how to split the loss - so it can take even longer to reach an agreement. In addition, the short sale closing process takes an indefinite amount of time. It is extremely unusual to close in 60 days or less - and pretty common to take several months before finalizing the sale. So buyers in a time crunch may not be able to coordinate a closing fast enough to meet their needs.
HIRE AN AGENT WITH SHORT SALE EXPERIENCE
Once a buyer has decided to pursue a short sale "eyes wide open" - it's very important to have a Realtor on their side that is familiar with the short sale process. Although buying any given short sale home is never a "done deal" until closing - having the right agent can literally make or break the deal. A great deal of communication, understanding of the process, and follow up is necessary to give a short sale its best chance for success.
While buying a short sale home can represent a great "deal," there are many potential stumbling blocks along the way. It is important to know just what you're getting into going in, so you're prepared for the possible pitfalls you may experience during the sale. Most of all, hire a Realtor with experience in all kinds of sales (short, foreclosure, traditional, etc.) so that he or she can help you explore your options, and choose the best route for you.
If you would like more information about buying or selling a home in your area, please don't hesitate to contact me! I am always available to answer your questions - and ready to serve your real estate needs. Your complete satisfaction is my goal - because I want to be your Realtor for life!