Buying a Short Sale Property
The bursting of the real estate bubble has led to an unusually large number of short sale homes on the market. While most people understand what a foreclosure or bank owned property is, there is a bit more confusion when it comes to short sales.
When a house goes into foreclosure, the lien holder forces the previous owner to vacate the home and in many cases this leads to a home that will require a bit of repair and maintenance work before it is ready for resale or a new occupant. A foreclosure usually means that the home owner is facing serious financial difficulty and in many cases, will sell or remove nearly anything of value in the home before vacating the property.
Banks are also notorious for allowing properties to sit un-kept for months at a time before making any effort to return the home to a livable condition. This typically leads to overgrown yards and can allow opportunistic vandals the chance to do further damage. A short sale on the other hand will usually take place while the owner is still living in the home. Unlike with a foreclosure, the homeowner still has a vested interest in maintaining the upkeep of the house to facilitate a successful sale that will likely limit the damage to his or her credit report.
A short sale occurs when a lender allows a homeowner to put a home on the market at a price lower than what he or she owes on the mortgage or deed of trust. A bank will sometimes agree to allow this to happen when it is to their advantage not to take on the expenses involved in foreclosing and re-marketing the property at a later date.
Buying a short sale can offer advantages to the buyer, the seller, and the bank when properly executed. The biggest advantages to the buyer are the opportunity to purchase real estate at a discounted price and the ability to take ownership of a property that is typically in better condition than a bank owned home.
If there are so many advantages, why are so many people afraid of dealing with short sales? Purchasing a short sale is often a somewhat long and complex process because it involves more interested parties than a traditional real estate transaction. Any time you are dealing with multiple parties who have a financial interest in an asset, you can expect a series of negotiations before reaching an agreement that everyone involved is willing to accept.
In a regular home purchase, the seller and a financially qualified buyer must simply reach an agreement. When dealing with a short sale, your offer must satisfy the lender or in some cases multiple lenders. Then, managers must approve the deal all the way up the chain of command at the lending institution before they clear the transaction to close.
Remember that a bank is a business and they make nearly all of their decisions by committee. This can take a significant amount of time and often results in complicated and drawn out negotiations.
Short sale transactions are best suited for people or investment groups who are patient and have the time to dedicate to work through the many unique road blocks that can come from attempting to satisfy the interests of several different parties. This certainly doesn't mean that you should avoid these homes; just be well-prepared for what you are going to face. Take the time to learn about buying a short sale home before you start to look at houses and make sure you have an experienced agent to work with who has the necessary skills to negotiate with lenders.
Purchasing a pre-foreclosure property can save you a lot of money over a standard real estate transaction and in many cases, it's a great way to buy a very nice home that other buyers are afraid to make an offer on. If you are flexible and prepared to dig in on a transaction that can take anywhere from 3 to 6 months, you can take advantage of the dip in the real estate market to make a purchase that could well end up being the deal of a lifetime when the process is finally complete.