The Top 4 Things to Know About Buying a Short Sale Home
Although the nation’s housing market continues to show signs of recovery, distressed properties still make up a large portion of the homes currently for sale. If you’re considering purchasing a home through a short sale, you probably already know that making this kind of home purchase can save you money. But before you move forward, there are 4 things you need to know about these transactions:
1. Be prepared to get a good deal, but not necessarily a great one!
In a traditional sale, the seller lists the home at a price, a buyer makes an offer, the seller comes back with a counter offer, and eventually the two sides agree upon a selling price for the home. Short sales are different! In this type of sale, the seller has already conceded to the bank that they can no longer afford to pay for the home, so the bank has all the power. The lender will determine a selling price for the home, and the seller accepts whatever price the lender and the buyer agree upon. The lender knows that they may not be able to sell the home for fair market value, so you can get a deal, but at the same time, they are going to try to get as much for the home as possible. So, you have to be more careful with your offer. If you shoot too low, the lender will simply walk away from the negotiating table.
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2. It's a lengthy process
Lenders often hire low-priced appraisers to do appraisals on all of their short sale properties at once. That means the appraiser doesn't always do due diligence, and therefore, they sometimes tell the lender that the home is worth far more than market value. When you come in with a reasonable offer, the lender may think it's too low, so be prepared for some back and forth on the negotiating. That can take some time, and even after an offer is accepted, there's still more waiting around. Remember, the lender is the dealer in this situation, so they control the deck of cards. In other words, the sale will take place on their time frame. It's also common to receive no communication from the lender during this process, which can sometimes last for a few months. So, you may feel left out in the dark until the lender decides that they are ready to sell the property.
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3. Don't expect the usual concessions
In a traditional sale, the seller may try to sweeten the pot by covering the buyer's closing costs, or may agree to make necessary repairs to the home before the completion of the sale. In a short sale, that's not going to happen. The whole reason the seller is selling the home is because they can no longer afford it, so they’re not going to be able to afford any repairs or closing costs. It's also important to remember that some lenders require certain repairs as a condition of their loan funding for the buyer, meaning if you purchase the home, you'll have to pay for those required repairs. Also, because the seller is struggling financially, they typically do not bring any additional cash to the negotiations. So, you'll have to cover the costs for the buyer's appraisal or home warranty that sellers often pay for in a “normal” sale.
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4. Lots of people are involved
Traditional sales usually only involve a couple of people – the seller, the buyer, and their realtors. A short sale includes additional people, including a loss mitigation specialist, who’s often assigned by the lender to approve all transactions. It's their job to make sure that all of the goals and needs the lender are met through the sale. So, you’ll have to deal with more people (and more scheduling conflicts!) if you go the short sale route.
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