Three Questions to Ask Before Seeking Out a Short Sale

Three Questions to Ask Before Seeking Out a Short Sale (Source: Pixabay.com - used as royalty free image)

Short sales can offer an incredible opportunity for a homebuyer to score a truly great deal – if they’re willing to weather the process. Let’s look at short sales – and count down the warning signs that pursuing one may not be the right choice for you.

What is a Short Sale?

First thing’s first, let’s talk shop. In real estate, a short sale is what 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.

In our experience, short sales can come up for any number of reasons. Often, they happen when the market dips and the value of a home falls, and so, to avoid going into default on their payments – and facing foreclosure – a highly motivated homeowner puts 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.

And while short sales can offer unique advantages to homebuyers, their tricky financial realities and unorthodox timelines also offer up a slew of challenges. It’s important to know if you’re the right candidate before getting swept up in the long, complex process.

Here are the three questions to ask yourself before you start looking for a short sale:

1.) “Can I Wait to Move In?”  

If your present housing situation is coming to a close by a strict deadline - that is, if your lease is ending soon, or if you’re already working on selling your current property – then a short sale may not be right for you.

In almost all cases, it takes much longer to close a short sale than a conventional home sale, and many homebuyers have to go through the process multiple times due to negotiations with mortgage lenders. If this doesn’t work for your timeline, avoid short sales. As Zippy Shell puts it: “You don’t want to end up temporarily homeless while you are waiting to close.”

2.) “Am I Good at Getting Paperwork Done the Right Way?”

Officially, federally regulated lenders must respond to an offer on a short sale within 30 days and deliver a final decision within 60. However, banks and other mortgage lenders use all sorts of tactics that stretch out the process – including asking for additional or revised paperwork.

And it’s not just the banks or mortgage lenders that you’ll be working with. Short sales necessarily involve multiple parties, including the home seller and often a second (or even third) lender, and all of those parties are responsible for lots of paperwork, some of it dense.

If the thought of red tape makes you break out in red hives, then a short sale may not be right for you. It’s important to be organized, thorough, and communicative with your real estate team; if you can't make buying this property a major priority, it may not be the right fit. 

The delays, the starting over, the uncertainty, they all require a strong stomach for red tape.
-- Jason Finn, Real Group Real Estate Team

3.) “Can I Afford to Work On the Property After the Sale?”

It’s important to go into short sales with a “buyer beware” mentality.

Short sales may sit vacant for a long time between the time the previous owners vacate the property and you’re finally able to close the deal and move in, which renders the properties subject to the perils of neglect, like leaks, mold, or pest infestations.

Many homebuyers seek out short sales because they present a bargain in the short term. But the reality is that the previous owners are seeking to get out of that place quickly – which may indicate that they didn’t (or, perhaps, couldn’t) invest a lot of time or money on the property in the first place. In some cases, the home may require major design updates and renovations from years of neglect.

Are you willing to spring for a thorough inspection – and for any repairs or renovations that crop up once you’ve finally closed the sale?

This is not to say that short sales are never the answer. They just take a certain kind of buyer. If you think you are that savvy home seeker, it’s important to have the right real estate team by your side. You’ll need an agent who’s consultative and eager to educate you on the real challenges of making a short sale work.

That’s where we come in! Drop Real Group a line today to get the process started!  

Real Group Real Estate

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