The real estate market is currently saturated with homes selling as short sales. These are homes being sold by the owners for less than what is owed on the original loans. In order to buy one of these properties, the mortgage holder must approve the offer. Since they will be taking a loss on the amount owed to them, they will need to be sure that the home sells for market value and that the homeowner is qualified to pursue a short sale. This process can take up to six months, so be sure that you are able to commit to the time involved.
Below are ten ways to ensure that your purchase goes smoothly.
- Hire a real estate agent. Since the mortgage holder is responsible for paying real estate commissions, having professional representation costs you nothing.
- Be prepared to show proof of your ability to purchase the home. You may be asked to provide bank statements, tax returns, origin of down payment, and pay stubs.
- Be sure that your offer is in line with current market conditions by have your agent do a comparative market analysis. Offering the seller’s asking price does not guarantee acceptance. Agents use different strategies to price their short sale listings. Some agents prefer to start with a low list price knowing that it will be rejected. The mortgage holder will then respond back with the value and the conditions that they are willing to accept. In this strategy, the first offer is a throw away and was only meant to gain information. Other agents set the list price high to lessen their client’s default amount. The mortgage holder will agree to this inflated price and the transaction will move forward. If the appraisal ordered on your behalf does not come in at the price you offered, you’ll be back at square one. Your options at this point will be to renegotiate the price, pay the difference between the appraised value and your offer, or cancel.
- Do the sellers have approval to do a short sale? It can take up to thirty days to approve the conditions of a short sale. There are guidelines that the sellers must meet. Be aware of these timeframes at the start and make arrangements accordingly.
- Since the short sale process is lengthy, you can still shop around for another home. You are not in contract until the mortgage holder approves your offer and you agree to move forward. If you want to make an offer on another home, protect yourself by disclosing to that seller that you are awaiting approval on another short sale and that the offer is contingent on the first offer being cancelled. By doing this you protect yourself from being contractually obligated to purchase both homes and a potential lawsuit.
- Postpone ordering inspections until you receive approval. The cost of inspections will be your responsibility even if your offer is rejected. The same is true for an appraisal ordered on your behalf by your lender.
- Be aware that most short sales are sold as is. The seller is not obligated to do repairs or improvements. Some repairs can be negotiated with the mortgage holder such as conditions that pose health and safety risks.
- As soon as possible in the transaction, find out if there are any outstanding liens on the property as these may become your responsibility.
- Ask if the seller’s default amount will be forgiven. Many sales have fallen through on this point. If the mortgage holder is unwilling to forgive the difference between the sales price and loan amount, the seller may elect to cancel the transaction.
- If applicable in your state, it is advisable to have the mortgage holder choose the escrow and title company. Buyers may be charged a penalty for not closing on time. If a delay occurs that is the fault of the escrow company, the penalty may be waived if it is a company of their choosing.
Buying a home today can be challenging. On average, only one in every five short sales will close escrow successfully. Know your options and be aware of the pitfalls. Hiring a real estate professional in this market is a wise choice whether you are a first time home buyer or a seasoned investor. Be sure the agent you hire is knowledgeable in current market trends and has a proven track record.
Feel free to call me with your Real Estate questions
Feel free to call me with your Real Estate questions
