Short Sales! What You Need to Know
Are you looking to buy a new home? Are you thinking that now's a great time to find bargains? That's true, but it pays to know a little about the seller's situation before you make an offer.
If a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many more home owners are finding themselves in this situation today.
A short sale is different from a foreclosure, which is when the lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.
You're a good candidate for a short-sale purchase if:
- You're very patient. The average short-sale takes two-four months on average to close, and can sometimes take even longer.
- Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set.
- You don’t have any contingencies. Lenders like no-contingency offers and flexible closing terms.
If you're serious about purchasing a short-sale property, it's important for you to have expert assistance. Here are some people you want to work with:
- Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who's knowledgeable about the short-sale process will increase your chances getting an approved contract.
- A qualified real estate professional.* A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender.
- Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property.
Some of the other risks faced by buyers of short-sale properties include:
- Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months.
- Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan. In that case, the sellers may refuse to go through with the short sale.
- No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.
The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.
* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.
Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the National Associaiton Of REALTORS®. Copyright 2008. All rights reserved.
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