A short sale or a pre-foreclosure happens when the homeowner is no longer able to pay off his monthly mortgage payments to the lender. A lender can agree to accept a discounted payoff upon owner’s request and release the existing mortgage. If you come across a home that is listed as a “short sale” at a significantly lower price than the market, do not be quick to make an offer before knowing what you are getting into.
Buying a short sale is not as simple as a traditional real estate transaction. It can take up to six months to close a short sale, and there are other potential pitfalls to consider as well before deciding to go ahead with such a deal.
When to Buy a Short Sale
There is no rush to complete the transaction. After a seller accepts your offer, it can take anywhere between two to 4 months for the lender to approve the sale. If you need to move in the house by a set date, it is best to stay away from a short sale.
You are pre-approved for the sale and have the ability to make a large down payment at any time the lender approves the sale. Cash offers are preferred by lenders when dealing with short sales.
Check Seller’s Background Before Buying a Short Sale
If a foreclosure has been filed or the seller has declared bankruptcy, most lenders will not approve the short sale. Also, if the home has two loans, it is very difficult to get approved from both lenders as the second lender will usually stand no chance of getting anything in return from the sale.
Hire an Experienced Short Sale Agent
An agent with experience in dealing with short sales is of vital importance. A good real estate agent with a history of tackling unforeseen problems during short sales will be worth it even if you have to pay a higher commission than normal market rates.
Submitting your Offer to the Lender
In a short sale, after the seller accepts an offer, it is then forwarded for approval from the lender. The lender can demand a higher price so make sure your agent supports your offer with comparable sales.
Once you have made the offer, it is time to wait since most lenders with a high volume of short sales will send the offer to a committee which can take up to 4 months. Patience is essential in this period since you will not be able to contact the lender during this period.
Short Sale Buyers
Prospective buyers of short sales must be aware of all pros and cons and proceed with great caution. The thought of buying your dream home on below market prices can be enticing, but the long periods of wait, haggling over the sales price, counter offers from the banks and a great chance of banks simply not accepting your offers can be hugely frustrating. However, when all the pieces of the puzzle come together and a short sale successfully goes through, it can be a great deal for the buyer.