If you’ve been looking at homes for sale, you’ve probably come across the term “short sale” for a particular property. This term describes a situation where a seller, usually in financial problems, is trying to sell his or her home for less than the outstanding balance of the loan. Avoiding foreclosure is usually the motivating factor. In some circumstances a seller may have already defaulted on the loan.
Don’t be fooled by the low market price of a home in this situation since they aren’t always the best financial deal. The seller could have bought the home at the high point of the cycle and paid more than they should have, or the current real estate market may have forced property values to take a nose dive. As a homebuyer, you also need to be aware of extra costs not included in the properties selling price.
One big problem you face in a short sale is having to wait patiently for the lender to accept your offer, especially since they’re taking a loss on the property. The lender must weigh the benefits of accepting your offer versus continuing to let the property go to foreclosure.
Unfortunately, waiting to hear from a bank can take several months, regardless if the seller accepts your offer immediately. Expect the entire process to take a while with no guarantee the bank will accept the deal, especially if the seller has been frantically advertising the home for significantly less than what’s owed on the loan.
If after weighing all the pros and cons of buying this type of property you still decide to pursue one, it’s best to select a Realtor who’s experienced in dealing with these type of properties. Your agent should do some research before you make an offer. It’s imperative you know what the seller owes on the home; if it’s a lot higher than what you’re willing to pay, most likely the bank will deny your offer.
Your agent also needs to investigate if there are multiple loans against the property. If additional ones exist, your agent will need the cooperation of all lenders to approve the deal. The more lenders involved, the less likely your deal will be approved since most lenders won’t forfeit their interest in the property without some compensation to make up for their losses. To find out if multiple lenders exist, just have your agent pull the deed to the property.
Before pursuing a short sale, make it a point to ask your agent to contact the seller’s agent and find out what preliminary short sale steps have already been taken. A bank will only consider accepting a short sale if the seller can document they are in financial straits. The fact of the matter is a short sale can’t be finalized without the approval of the bank. Unless you’re not in a hurry to buy a house, you want to be sure the seller has confirmed with the bank a short sale is a viable option. There’s no point in wasting time pursuing a property if you’re convinced the odds of having the bank accept a short sale are nearly impossible.
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