With patience and an experienced realtor, a short sale can help you get a good deal
If you’re in the market for a new home but struggling to find a property within your budget, you may be able to find homes listed on a short sale below their market value.
Short sales happen when the current homeowner’s mortgage loan balance is more than the home’s value, so the lender allows them to sell it for a discounted price. While this type of sale can be a great deal for the buyer, the transaction is far more complex than an average home sale, with a lot more risk involved.
If you’re patient enough to pursue a short sale deal, here are eight tips to help you successfully navigate the process.
Buying a short sale tends to be a longer, more complicated, and riskier process than buying an average home. Hire a local real estate agent specializing in short sale properties to offer advice and protect your real estate interests when working with lenders. Plus, lenders prefer to work with agents who already know what’s required to close a short sale deal.
An experienced agent will help you research the property, advise you on its value and condition, how much the seller owes, and the number of mortgage liens against it. Be sure to communicate with our agent about your intentions for the home, plus how much you’re willing to invest in repairs.
Any lender negotiating a short sale will have just lost money on a risky investment, so they’ll want to ensure that you’re capable of purchasing the property. You’ll have an advantage over other potential buyers if you can pay cash. If not, you’ll need financing preapproval before making a serious offer.
To ensure you continue to qualify for the loan or rate you need, don’t make major purchases or apply for additional credit before you buy the home.
Before making an offer, work with your agent to gather as much information as you can about the property. Compare the price to other listed and recently sold homes in the surrounding area, and determine exactly how much the seller owes the lender. That amount will be more than the actual value of the home.
You should also hire a title company to conduct a title search on the property. This will tell you about all existing liens and lien holders, which are people or entities that have a claim to the property.
While a short sale home can be a good deal, avoid coming in too low with your offer. The lender is trying to recoup as much of the remaining mortgage balance as possible, so your offer should match or be close to market value if you want it to be accepted.
Work with your real estate agent and use your knowledge of local home values to determine a realistic offer. You can also offer to pay the seller’s closing costs to make your offer more appealing than that of other potential buyers.
Short sale sellers often can’t afford to make the necessary repairs to their home. Properties are typically sold “as-is” with little room for price negotiation, even if there are problems. However, it’s still important to understand the condition of the home before deciding whether to close on it.
Hire a home inspector to determine what repairs may be needed, then talk to local contractors to get cost estimates for each project and find out if the home is worth it. While the seller can’t negotiate, their lender may be willing to make repairs to make the home livable or lower the asking price.
Many things can go wrong during the drawn-out short sale process. You may discover more problems than you’re willing to invest in repairs. Vandalism or severe weather damage may occur prior to closing. If you put money down, you want to be able to walk away without losing your deposit.
That’s why it’s important that your real estate agent includes contingencies in your contract offer. These contingencies may state that the agreement isn’t valid unless you obtain the loan you need or unless the homeowner maintains hazard insurance on the property. You can also include an interest rate cap in the event that rates increase while you’re waiting for the seller’s team to accept your offer.
If you’re on a strict timeline, you may not want to look at short sale homes since you won’t be able to guarantee a specific move-in date. Lenders are heavily involved in the closing process, and they can sometimes take up to six months or more to negotiate and accept short sale offers. The more lien holders, the longer the process will likely take.
In a typical home purchase, your realtor will make a commission from the home seller. However, home sellers in a short sale don’t have enough equity in the house to pay that commission, and the lender may not pay the full amount that your realtor or the listing agent requires.
Your real estate team may ask you to pay additional fees on commission, sale processing, closing costs, and attorneys. If you have questions about what they can legally charge in a consumer real estate transaction, you can contact the Consumer Financial Protection Bureau.
