Shall I buy a Short Sale?

SHALL I BUY A SHORT SALE?

That answer can be YES or NO. It depends on many things. I will try to explain
what a short sale is,
what you can expect and
what can happen if you give an offer on a short sale.

A short sale is when a homeowner of some reason wants/needs to sell his property and he owes more in the property than its market value.

The homeowner/listing agent will then ask the bank/banks to forgive this difference between the owed money and the selling price. The bank needs proof that there is a true hardship, it means that the homeowner might have lost his job, has a job transfer, got divorced or got ill with high medical costs or what else that has happened. It is not sure that the bank will forgive all that money but can demand the seller to pay back some of the money (promissory note).

To start a Short Sale procedure, the listing agent will have to have an OFFER from a buyer. As a short sale is a long, insecure process many buyers do not want to give an offer on such a property. Therefore the listing agent will need to put an attractive asking price on the property to get interested buyers.

The listing agent can put whatever price he/she wants on the property, of course with sellers acceptance. The listing agent needs an offer as soon as possible to start the whole process. It is NOT SURE that the bank will ever accept that price as it is THE BANK THAT DECIDES THE PRICE IN THE END.

The banks are interested in getting as much money as possible so they have often several appraisals on the property before they accept an offer from a buyer. A cash offer is not more attractive for them as a buyer with a normal loan, remember they WANT MONEY.

The homeowner also wants the highest price possible as the less difference between owed money and selling price means faster response and less risk for the homeowner to have to pay money back to the bank.

So when you, BUYER, sees a house for sale as a Short Sale you will have to know that


1) The price is not sure (mostly the price is too low for market value)
2) The bank is not willing just to sell the house for much lower price than value
3) The homeowner will have to accept an offer, can come with a counteroffer
4) Then the bank will have to accept the offer, that the seller accepted, will mostly
come with a counteroffer
5) The whole procedure will take time, expect min. 2 months to easily 4-5 months
before the buyer, (if the seller accepted his offer), will be accepted by the bank
or what kind of counteroffer the bank will give
6) Some problems can suddenly show up as:
leans on the property somebody has to pay for
unpaid HOA fees that have to be paid (who will pay for that?)
homeowner will declare bankruptcy and the sale will stop
7) Nobody is willing to pay for repairs in the house. House is sold AS-IS.
8) Nobody will pay for the Home Warranty (sometimes the banks accept to pay)
9) Sometimes the bank will pay up to 3% of buyer's closing costs
10)Sometimes the buyer will have to pay for the termite inspection and the repairs.
11)Sometimes the listing agent will open escrow with the accepted offer by the
seller even the bank has not agreed to sell the property yet.
12)Sometimes the buyer will need to give some extra private information as birth date
13)You will need to be patient. This here takes time but you can get a good price
house. We will still use the same purchase contract and the time frame and rights
are the same.

So the question was: "Shall I buy a Short Sale?" And the answer will be,

"Yes" , if you can wait these months and are aware of these risks that might be. To lower the risks, be sure you know what the comps (comparatives) are for your property and compare them with your offer. If it is a property with a HOA find out through your agent if the HOA is paid up to date. You can still look for other houses while you are waiting.

"No" if you hate to wait and is impatient or you have to buy right now. Look for a REO (Bank owned house) or a normal sale. You will get an answer within some days. Normally a REO will get a lot of offers. Expect to go up in price. Listing price for normal sales are often higher as you will get all kind of disclosures and knowledge about the property and safer as you can always come back to seller if something was not disclosed.

Short Sales are normally nice well-kept houses as people still live in the houses while REOs are often a kind of destroyed houses as they have not been taken care of for a long time and might have been empty for half a year or more. Recently many banks have painted, put new carpet and made some repairs in these houses before they come on the market.

Hopefully, this article can help to understand a short sale. Be free to contact me if you have more questions. I have tried to explain it as easy as possible.

Marianne Leopold
7/25/2010