Buying a short sale
The number of short sales has fallen significantly in the last year as rising home values have forced far fewer distressed homeowners to sell, even though they owe their lender more than their homes are worth.
Yet short sales remain plentiful in some states, and you can still find some serious bargains, which is the major reason any buyer messes with a short sale
DID YOU KNOW?
According to the most recent data we've seen from CoreLogic, a California firm that tracks real estate transactions, at least 7% of of home sales in Connecticut, Maryland, Nevada and Rhode Island are short sales.
The latest records from Black Knight Financial Services in Jacksonville, Florida, found short sales cost an average of 31% less than full market value in New York, and the discount was 25% to 30% in 10 other states, including Vermont, Missouri, Rhode Island, Michigan and Indiana.
SO WHAT IS A SHORT SALE EXACTLY?
A short sale listing is one in which the seller still owns the property, but owes more money on his mortgage than he will get from selling the property. Most often, more than one bank holds a mortgage on the property and each bank has to approve the sale. Additionally, if the seller has mortgage insurance the insurer's approval will be needed to move the deal forward. With multiple parties required to approve the transaction, the short sale process can be long and frustrating, and comes with no guarantee of success. Also, even if your short sale offer is accepted, the banks will usually ask you to buy the home as-is and won't pay for any repairs discovered by an inspection
WHAT IS THE DIFFERENCE BETWEEN A SHORTSALE & FORECLOSURE?
Short sale homes are still owned by the home-owner, while foreclosures are owned by banks. If the home-owner cannot sell the home through a short sale, the bank initiates foreclosure to try to sell the home directly, often in an auction. If the auction fails to turn up a buyer willing to pay at least what the bank was owed on the home, the home becomes Real Estate Owned (REO), where the owner is the bank. The bank then typically sells the property through a real estate agent.
How Do I Know If a Listing is a Short Sale?
Any listings that I have which is a short sale will be marked.
However, more often than not I am unable to flag listings marked as short sales in the listing's agent-only remarks. So you may not realize that the property you are trying to buy is a short sale. When you schedule a tour to go see homes or submit an offer we'll confirm that the homes you are looking at are not short sales.
SO WHATS THE BOTTOM LINE ON BUYING A SHORT SALE?
Step 1. Make sure you’re a good candidate. This type of home purchase is all about presenting the lender with a deal it can’t refuse. Banks and mortgage-servicing companies are most likely to approve buyers who:
Have a substantial down payment.
Have been preapproved for a home loan.
Place no contingencies on their contract, such as having to sell their current home before proceeding with the purchase.
Smart move 2. Hire a real estate agent who is experienced in this type of sale.
Many banks have companies that manage their short sales. You need a pro of your own to match that experience and help you navigate the process. A real estate agent who has done lots of short-sale transactions will know how much of a discount is common in your area, what you’ll need to do to get your bid accepted and when to walk away from a deal that’s not going your way.
Smart move 3. Offer the right price.
Knowing how much to offer is key, but it’s not as straightforward as figuring your bid on an owner-occupied home or even a foreclosure.
Smart move 4. Be prepared to wait — but not too long.
It almost always takes longer to close a short sale than a regular home sale, because it takes so long for lenders to review and accept your proposal. When you make a short-sale offer, federally regulated lenders must respond within 30 days and deliver a final decision within 60 days. That deadline has loopholes, however. The lender can ask the home sellers for more paperwork and then delay the decision while waiting for the paperwork.
If you still plan to make an offer on a short sale, be prepared for a long haul. Our policy is to work with a buyer on only one home offer at a time, so if you change your mind and decide to back out of your short sale offer, let your agent know