Investopedia says:
A real estate short sale is any sale of real estate that generates proceeds that are less than the amount owed for the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure.
So, when home values fall, and sellers are no longer able to pay off their existing mortgages, they have to list their homes as a short sale. Sometimes a buyer may think that short sale is a really good deal. But don’t hurry. It’s not an easy task as it may seem. And before buying a short sale property get ready to spend some extra money on the fees and on further possible renovations. Here we’ve put together some successful tips to avoid expensive problems that a short sale could bring.
Tip #1: Don’t ignore home problems
Let’s go back and realize again, that a short sale is a result of not being able to pay the mortgage. So, it might be obvious too, that the homeowner had financial problems and couldn’t maintain the home properly. Empty foreclosure properties may suffer from leaks, mold, termites, and so on. And that is natural for a home which has been vacant for weeks or even for months before the purchase. Actually, renovating and remodeling may cost you quite a large sum of money and turn your good buy into a goodbye.
Tip #2: Inspect the Home
To be fully confident about the property and find out all its problems you’ll have to hire a professional home inspector. In case you are handy enough and don’t want to spend on this, download our free printable – Home Inspection Checklist. Anyway, a home inspection is a must when buying a short sale property. There could be some problems you won’t see going through the rooms. Don’t underestimate renovation costs. If the inspector notices a problem, make sure to ask for a repair or at least do some research and see how much it would cost. See if there are some common expensive problems in your area and ask the inspector to pay special attention to them – mold, termites and structural damage.
Tip #3: Have a Short Sale Realtor
Hire a real estate agent with short sale experience or one who likes short sales. That may be a really great strike against you if your agent has never handled a short sale before. A good professional will help you to make a good offer and can anticipate surprises. You can just miss some important details, or it may come out that your transaction was not closed on time because of an inexperienced agent.
Tip #4: Don’t hurry, but do not wait too long – close the transaction on time
A short sale transaction almost always takes longer to close than a regular home sale. Typically, a short sale offer must get a respond within 30 days and deliver a final decision within 60 days. But sometimes the lender can ask for some extra paperwork and delay the decision. So you should be ready to put some more effort, money and your sanity for short sale home. To be able to close a short sale on time, you should take care of all loan paperwork immediately after opening an escrow. Keep in mind, that during a short sale, exceptions are rarely made.
Tip #5: Consider legal and insurance information
As homes listed as a short sale and bank-owned homes often sell AS IS, you should do a bit more research. Check the home status. Find out if all renovations have been permitted and approved. Ensure checking out the disclosure statement and see if the house was in a flood plain or had any unpermitted renovation.
Tip #6: Fully Approved Short Sale
Here again, you’ll need an experienced agent to help you negotiate the best deal. You can even make a lower offer and the bank will still accept it. So, you’ll get the opportunity to get a great deal without waiting too long. Here the approved short sale list price is exactly the offer the bank will accept. This may happen, for example, if another buyer offered the same price, but didn’t close the transaction. So, approved prices are the best for short sale, and this type of short sales is some of the most highly desirable.
By: Hermine Aslanyan
Additional Useful Resources:
20 COLD, HARD FACTS ABOUT REAL ESTATE SHORT SALES by Lynn Pineda
What You Need To Know About Buying a Short-Sale House via Ferris Property Group
How To Get A Mortgage After A Short Sale by Anita Clark
Vipul Plaza
It’s a hit on nail head. Great Write-ups. Keep it coming.
Thanks
One would hope someone whose mortgage is equal to or more than the value of the house, i.e. “Upside down” or “Underwater” didn’t discover this all of a sudden. He/she might have know for months of years that they were upside down but did nothing about it, even possibly listing the home in a fantasy belief a Realtor could somehow miraculously bail them out of a bad financial situation. Then after three months of the home being Listed for more than comps will support, a new realtor is hired and three more months of an overpriced home sit idle, and maybe even another new Realtor and three more months until reality and despair sink in prompting some homeowners to cease paying their mortgage even though they could. They adopt an “Oh, what the hell.” attitude.
Is a Short Sale the answer? Maybe, maybe not but remember the defaulting Homeowners’ credit will be trashed for years and they could even owe Income Taxes on any Debt Relief granted.
Are there any alternatives Yes, the Homeowners could sell the property for what they owe, if the value of the home is within 10% of what is owed, e.g. owe $350,000 on home worth $340,000. How you ask without doing a Short Sale? The Home owner could sell the home “Subject To” or in some cases with a “Wrap Around” mortgage or in some states with an “Agreement For Deed” or “Land Sale Contract”. The sell the home for what the current balance(s) is and the new Owner pays the P.I.T.I. with a clause that if the P.I.T.I. goes up so do the payments of the new Owners.
Who would buy this home where a mortgage exists equal to or more than the comps, how about a couple with a strong income and job stability, e.g. own a business, are a professional etc., but due to a severe financial setback, perhaps bankruptcy, have a 550 FICO and cannot get any kind of loan. They need 3 – 5 years to rebuild their credit and cash then Seller out.
Also, the Seller of the upside down home could do a Lease with Option where the purchase price equals the mortgage and the monthly payments equal the P.I.T.I.
Will this work? Yes, that’s what I specialize in, getting people out of and people into upside down homes.