When
buying a home, you may notice that some properties are listed as short sales.
When a listing is labeled as a short sale, it means that the seller’s lender is
willing to accept a discounted payoff in order to release the existing mortgage
on the property.
In
such a transaction, the lender agrees to accept an amount that is less than
what is owed on the mortgage. The sale benefits the lender because it allows
the lender to avoid repossessing the property in foreclosure as this is not
only expensive, but also time-consuming. The seller also benefits from the sale
as it allows them to avoid creating a poor credit record that may come with a
foreclosure.
When
buying a short sale home, there are several important things a homebuyer needs
to know:
How short sales work
The
lender does not own the home in a short sale. However, it will seem as if the
buyer is buying the property from the bank because the bank will approve the
sale. Although buying a short sale home is similar to a traditional purchase,
there are some few differences in how the purchase agreement between the buyer
and the agent is drafted. While the only party who needs to approve the sale in
a normal transaction is the seller, a short sale contract has to specify that
the terms are subject to the lender’s approval. Additionally, the contract has
to state that the home is being purchased “as-is”.
The
buyer is also allowed to include language in the agreement that allows him/her
to back out of the deal if an inspection of the property reveals considerable
problems. However, the general rule is that the buyer should not expect the
lender to reduce the price in order to account for any repairs. It is also
unlikely that the bank will make any repairs, and the seller is even less
likely to assist because they are often short on cash. The buyer needs to make
that they have enough money for the closing costs.
The waiting game
If
you’re buying a short sale property, be prepared to play the waiting game.
Banks/lenders are notorious for taking a long time—up to several months in some
cases—to respond to an offer on a short sale. In order to limit the wait time,
experts recommend that a buyer should give the lender a deadline. Although it’s
not clear if the strategy will push the bank to act fast, it is worth trying
for those who can’t stand the stress of waiting for months to get a response.
Nevertheless, if the bank has not approved the short sale at the time the buyer
is making the offer, it will be useless to implement a deadline because it may
take a couple of months just for the lender and the seller to reach to an agreement.
Weighing the benefits
Experts can’t agree on whether a short sale is a good deal
for the buyer. Some believe that short sales are often priced below the market
value, which creates an opportunity for the buyer to get a good deal or for a
first-time home buyer to own a home when they otherwise might not be in a
position to afford one. Others say that lenders don’t have an interest in
selling property below market value and will conduct a comparable analysis
before accepting a price for short sales.
