With the real estate market in near shambles, it is reported that one in about 145 homes are in foreclosure. There is a step before foreclosure termed a “short sale”. If you are a buyer looking to get a good deal on a house this may be an option for you.
What is a short sale?
In basic terms a short sale is a pre-foreclosure. It means that the owner of the home cannot pay their mortgage any longer but typically is up to date on payments, or has just fallen behind. A short sale is an agreement the bank (who holds the mortgage) makes with the homeowner to sell the house for less than the homeowner owes on it, with the opportunity to pay the bank back a percentage of their loss. Someone is coming up “short”, thus the term.
Since the bank and the homeowner want sell, a buyer can typically pay thousands less than they would in a traditional sale. This is the biggest pro for someone looking to potentially save thousands of dollars.
There are many negatives involved in a short sale for the buyer. Firstly, the term “short” makes it seem as though the deal will go through quickly. This is not the case. Short sales can take months to close, because there is third party approval from the bank required and a lot of back and forth. Also, there are many addendums to the contract in a short sale. The biggest and most troublesome is that in a short sale, the bank will write the contract to state that they can still accept offers even after they accept yours. This means, you can be packing up your things getting excited to close on your new home and the bank can call a day before closing telling you the deal is off. Typically there is no home warranty and the home is sold in “as in” condition.
Things to remember:
If you do choose to consider short sale properties in your home search, there are a few things to consider. Ask you real estate agent to amend the contract to state that the bank cannot accept other offers after yours is accepted.
Be prepared for a counter offer because the bank will not want to let the house go at a low price, so bid low but not too long to be rejected completely.
Also, be prepared for a lengthy process. A short sale can take anywhere from 4-8 weeks for an offer to even be accepted, and this is before closing and underwriting.
Short sales have many negatives, but if you are a patient person who wants to save several thousands of dollars on your new home it may be worth a try. Tread carefully though, and if you can afford it, a real estate attorney can be your best friend. Happy house hunting!