What Are the Challenges of Purchasing a Short Sale?

What Are the Challenges of Purchasing a Short Sale?

A short sale occurs when a homeowner wants to sell a house that is worth less on the open market than is owed on their outstanding mortgage (including other liens.) In other words, a homeowner owes a lender more than their property is actually worth.

Short sales come up for any number of reasons – more often than not, they happen when the market dips and the value of a home falls. To avoid going into default on their payments – and facing foreclosure – some homeowners are highly motivated to sell, putting their house on the market for less than they owe on the property. If an offer to buy comes in, it needs to be approved by the bank or mortgage company. If they don’t approve the contract, the deal is off.

If you’re looking for a new home, there are certainly advantages to seeking out a short sale, chief among them the opportunity to buy at a (sometimes deep) discount. But the process of buying a short sale is full of challenges, and not for everyone. It takes a certain kind of buyer with a lot of patience to overcome the hurdles of making a short sale work.

Still interested in looking for a short sale? Here are a few things to consider:

Are You the Right Candidate?

In order for a deal on a short sale to go through, it must be approved by the bank or mortgage company, and that is only really likely to happen if you can make an offer that costs the bank less than them foreclosing on the property. Not only is this process financially tricky, but the bureaucracy can be quite time consuming. Before you dive in, talk to your real estate team to make sure this is the right move for you.

A few questions to ask: Will you be able to make the kind of large down payment that will make this offer attractive to the bank? Are you pre-approved for a home loan? Will there need to be any contingencies on your contract, such as a need to sell your current home?

Can You Offer the Right Price?

With a short sale, it’s important to remember that the listed price is only an estimate, and the financial institution may always come back looking for more money.

Our advice? Don’t tip your hand too early. Don’t open negotiations by offering every penny you have to spend, as often the bank will come back with a higher offer. Leave some breathing room so that a higher price doesn’t leave you high and dry.

Are You Willing to Play the Waiting Game?

Officially, federally regulated lenders must respond to an offer on a short sale within 30 days and deliver a final decision within 60. There are all kinds of loopholes – including asking for additional or revised paperwork – that can stretch out this process, however. We’ve had some short sale experiences go on for 13 to 14 months.

Be patient and remember that it almost always takes longer to close a short sale than a conventional home sale, or even a foreclosure. And when the bank does approve of the offer, you need to be prepared to act quickly. Their approval is only good for 30 days, so you and your mortgage lender may need to act fast to get your new mortgage underwritten in time.

If you can’t handle setbacks, a short sale may not be for you; we’ve had go clients go through three or four different processes before finding the right transaction. But if you’re willing and able to stick to it, you may come out of the deal with a real bargain on your hands – and just think, you may have helped save the seller’s credit in the process!

Another key part of deciding to pursue a short sale is making sure you have the right real estate team around you. Look for a real estate agent with a personality that works for you. Most importantly, your agent should be consultative and eager to educate you on the real challenges of making a short sale work.

When you’re ready to start the process, drop Real Group a line! We have the team and the experience to help you every step of the way.


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2526 N Lincoln Ave
Chicago, IL 60614

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