Keeping It Real In the Real Estate Market – What Buyers Need to Know About Short Sales

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Clearly in this buyers’ market people looking at homes to purchase are considering all options. It is also no surprise that sellers who are faced with financial strife or difficult situations arising from steep drops in the value of their homes are turning to alternatives. From the seller’s perspective, short sales are a way to hold on to some dignity while not entirely messing up their credit outlook. But what about from a buyer’s perspective? In this article, we’ve put together three important aspects of being a short sale buyer that every homebuyer should consider.

What Does the “Short” in “Short Sale” Really Mean?

We have all heard the recent buzz words “short sale” but do you, as a buyer, truly understand what it means? As a buyer, it can mean a great deal for you on a home that would otherwise cost you more than an arm and a leg. Simply put, a short sale is when the amount owed on a property is greater than the amount the property is currently valued at. For owners in this situation, it can engulf them like quicksand given the huge dips in property values lately. For prospective buyers, though, it is an opportunity to buy a home for less, knowing that in just a few years it will gain value.

Example: A home currently valued at $300,000 has a mortgage owed on it for $500,000. Sellers must appeal to the bank to release them of the liability – a difference of $200,000. If approved, the original payoff will be shorted to reflect the new value of the home. This is an alternative to foreclosure but it means that the banks are taking a huge loss and usually the homeowners cannot afford the current mortgage.

Rule Number One – BE PATIENT

Properties that will be considered as short sales usually have the homeowners still living in the home. Their first step will be to approach the lender and apply for a short sale. Consider this: there are many steps from the moment the homeowners put in an application to the time you are given the keys, if approved. The time it takes can be long and arduous – something that makes sense given the large numbers of short sales banks are contending with these days. Be prepared to wait anywhere from 3 months to even a year for the entire thing to process.

Rule Number Two – FLEXIBILITY IS KEY

Short sales are nothing like the traditional home purchase process. Unlike a regular transaction, you will not be given any disclosure statements. Further, and very importantly, once an inspection is performed, the sellers will most likely not be able to afford to pay for any of the necessary fix-ups. Short sales are considered “as is” sales and though they can be risky, the benefits usually outweigh the risks. In addition to the obvious fact that Realtors are very well versed in this relatively new phenomenon, an advantage to using a Realtor for the short sale process is their negotiation skills. Realtors often can convince banks to reduce the price or give credit in cases where there are major issues with the property. Though it is not fool proof, it is definitely a viable option for many and worth the fifty-fifty chance.

Rule Number Three – BE REALISTIC

It is not exactly like you are dealing with the friendly couple selling their home through the regular real estate channels. You will be dealing with a bank, and as cold and harsh as that may sound, it is true that banks simply do not care in many cases. Do your best to keep expectations at bay. Know that incomplete or inaccurate information (on both the buyer’s and seller’s part) can negatively affect the outcome of your potential purchase. Given that they are dealing with dozens of short sales each month these days, banks gladly move on to the next application if something is amiss.