Buying a Short Sale Property
A short sale property is real estate sold at a lower price than what is owed on its mortgage. Such properties are typically described as being “underwater.” Short sale properties are commonly owned by people who have defaulted on their mortgages and are at risk for foreclosure.
Danger and opportunity
The combination of low interest rates and low home prices have resulted in investment opportunities for those who qualify for financing and are in the market to buy real estate. However, buying a short sale property differs from other real estate purchases in several ways. Knowing what these differences are and being acquainted with the pros and cons of buying a short sale property will increase your chances of being satisfied with the outcome of your purchase.
Short sale purchase transactions are different from other real estate purchases. To begin with, your bid for the purchase of a short sale property is submitted to the lender, not the homeowner. The bank does not own the short sale property, but it does have to approve its sale price and the sales contract. Having to deal directly with the lender instead of the buyer prolongs the time it takes to complete the purchase of a short sale property. It may take weeks or months of rejections and counter offers before a bid is accepted by the lender.
Lenders also have the right to continue to accept offers late into your negotiating process. You may be rejected as a buyer even after you have paid for an appraisal. Because of this uncertainty factor, you may want to hedge your bets and look at more than one property at a time. If you do have a successful purchase, the lender, not the homeowner, will be paid.
In addition, short sale properties are sold “as is.” Don’t expect the bank to lower the price to accommodate the need for repairs. It’s a good idea to consider any repair costs as an additional and separate expense.
Before making a bid on a short sale property, check public records and online resources to make sure that the price is consistent with the market.
Pros and cons of buying a short sale property
Cost savings is the major advantage of buying short sale properties. This makes it possible for you to own a home at a price that is vastly discounted.
There may be more than one lender involved, and each has to approve the sale. This can prolong the time it takes to complete your purchase.
Most short sale properties are occupied at the time of purchase, so they are less likely to be in a state of severe disrepair. Being occupied also eliminates the risk of squatters and the damages they can cause.
You need experts
Buying a short sale property is not something that you should do on your own. Instead, you should seek the help of a real estate agent who is well seasoned in this kind of home ownership negotiation. Likewise, your lawyer and appraiser should be very well acquainted with all aspects of short sale transactions.