Short sales are becoming common practice in real estate these days. Nearly a fifth of home sales in January and February were short sales. The process of purchasing a short sale is different than a traditional transaction, though, so buyers should be aware of the pros and cons and how a short sale works.
A short sale is generally conducted when a homeowner is underwater on their mortgage and headed toward foreclosure, only the lender is willing to take less than what is owed on the loan to sell the home before it goes into foreclosure. The lender would rather try to sell the property for a slight loss than keep it on the books as a foreclosure, which typically sell for a lower price and have associated legal and up-keep expenses.
Buyers are attracted to short sales because prices are low (oftentimes below market value) and are viewed as a good deal. But just because a property is distressed doesn’t mean lenders will accept low ball offers. Buyers should consider other comparable homes in the area when deciding an initial offer price. However, don’t forget to factor in the cost of any repairs. Short sales are sold “as-is,” so buyers are responsible for fixing problems themselves. Get the home inspected to assess the condition and extent of repair needs before making an offer.
Probably the most difficult part of buying a short sale is the waiting. After you submit an offer it could take weeks, even months to get an approval from the lender, with very little communication in between. Some reports estimate the average response time for short sales is 9 weeks (more than double from a year ago). And during that time buyers may not get any updates on how things are progressing or what the status of their home purchase is. This can prove frustrating as there is no guarantee that the sale will go through and buyers are stuck in limbo for an indefinite period.
Due to this uncertainty, it’s a good idea to continue your search for other homes in the meantime. Of course, confer with your real estate agent before moving forward with any other transaction to protect yourself from loosing earnest money.
To find out more about the opportunity short sales present to today’s buyers, speak with an agent!