If you have been browsing the market for homes for sale, you probably have encountered at least one short sale property. Also called pre-foreclosures or short pays, it simply means the previous owner of the home is unable to pay their mortgage and is now selling the home to compensate. They had the approval of the lender who will get the full proceeds from the sale of the home. It also means the value of the home had become lower than the mortgage that was taken out in the first place.
Both parties are hesitant to go into foreclosure because it is time consuming and costly. In contrast, selling as a short sale property allow the seller to get rid of their mortgage debt and hopefully have the rest of their debt forgiven.
If you want to buy this type of home, you need to ensure that the lender knows that the home is for sale. Although the home is not technically owned by the bank yet (like in foreclosure), the seller needs their blessing to push through with the sale. In essence, it is like transacting with the lender.
There are qualities of the transaction that makes it seem like the traditional home buying process like the presence of a real estate agent, a mortgage and so on. However, there are differences like the purchase agreement that you will draw up together with your agent. You need to incorporate the lender’s approval because they will decide whether to accept or decline your offer for the short sale property.
In most cases, if not all, the house is being bought “as is”. You cannot make demands for it to be repaired before closing. You can place in the contract that you have every right to back out if the home inspection shows too much damage to the home. But do not expect that the lender will negotiate with you on the price.
In all probability, the seller of the short sale property is in financial crisis so most of the closing cost may be shouldered by the buyer.
In this type of transaction, you may have to wait after you send in your offer. Sometimes, banks take a few months to respond to a short sale offer. You can place a deadline but it is hard to guarantee that the lender will follow. Not only that, the seller and the lender will take a couple months to settle their own short sale agreement. So if you are in a hurry to purchase a home, you may want to go for the traditional purchase.
While the appeal of buying a short sale property lies in its pricing (which is usually below the market value), some lender will still try to sell it at its current market value. Sometimes, the agent who listed the home only Some are lucky enough to get a good deal though – but most of them had to wait a couple of months for that.
In comparison, a short sale property is in a much better condition than a foreclosed property. The seller is probably still living in it and they are unlikely to trash it. While some repairs may have been foregone (due to their financial crisis), the home could be in its best condition given the present circumstance.
To maximize deal that you will get out of this transaction, make sure your real estate agent has the adequate experience in short sale.