Purchasing Short Sales
Are you looking to buy a new home?
Well, in this market there are a lot of bargains and Short Sales are a top pick for those looking to buy a home at a discount.
A short sale is different from a
foreclosure, which is when the seller's lender has taken title of the home
and is selling it directly. Homeowners often try to accomplish a short sale
in order to avoid foreclosure. Although a short sale purchase is becoming
increasingly popular due to today's economic environment and the great bargains
available, a short sale holds potential pitfalls for buyers. So you need
to know the risks before you pursue a short-sale purchase.
You May be a Good Candidate for a Short Sale Purchase if:
- You're very patient.
Even after you come to agreement with the seller to buy a short-sale
property, the seller’s lender (or lenders, if there is more than one
mortgage) has to approve the sale before you can close. When there is only
one mortgage, short-sale experts say lender approval typically takes a
minimal of two months. If there is more than one mortgage with different
lenders, it can take four months or longer for the lenders to approve the
- Your financing is in order. Lenders like cash offers. But even if you can’t pay
all cash for a short-sale property, it’s important to show you are well
qualified and your financing is set. If you're pre-approved, have a large
down payment, and can close at any time, your offer will be viewed more
favorably than that of a buyer whose financing is less secure.
- You don’t have any contingencies. If you have a home to sell before you can close on the
purchase of the short-sale property, or you need to be in your new home by
a certain time and if you want the bank or homeowner to make some repairs in order for you to buy it—a short sale may not be for you. Lenders like no-contingency
offers and flexible closing terms.
If you're serious about purchasing a
short-sale property, it's important for you to have expert assistance. We have agents that specialize in Short Sales and have the CDPE designation that proves it. If you are serious about purchasing a Short Sale, it is important you work with an agent who is qualified and experienced in Short Sales. There are many real estate agents who don't know anything about Short Sales, don't like to do Short Sales and will hurt your chances of a successful closing if they have no clue what they are doing. There is a lot of work involved to get a Short Sale approved and lots of communication to be had with the lender and if you have the wrong agent on your side it can mean disaster. Short sales
aren't high on the list of a buyer’s agent favorite transactions. Deals take
longer to close and sometimes they don't close at all. The listing verbiage
needs to assure the buyer's agent it's worth the time invested.
We suggest you interview agents and ask them about their Short Sale experience, how many buyers or seller have they represented and how many Short Sales have they successfully closed.
Genesis Real Estate Service's agents will be able to show you Short Sale homes available in your area, help negotiate the purchase when you find the property you want to buy and smooth over communications with the lender.
Some of the Other Risks Faced by Buyers of Short Sale Properties Include:
Potential for Rejection
Lenders want to minimize their losses as much as
possible. If you make an offer tremendously lower than the fair market
value of the home, chances are that your offer will be rejected. Our expert agents will sit down with you to strategize your offer once you find a property you want.
Even when a lender approves a short sale, it could require that the
sellers sign a promissory note to repay the deficient amount of the loan,
which may not be acceptable to some financially desperate sellers. In that
case, the sellers may refuse to go through with the short sale. Lenders
also can change any of the terms of the contract that you’ve already
negotiated, which may not be agreeable to you. There may be times where the lender can change the potential closing date to a longer or shorter time frame already agreed upon in the original agreement that may not be convenient to you.
No Repairs or Repair Credits
You will most likely be asked to take the property “as
is.” If the property is already abandoned, there may be a strong chance that the home may have been or will be vandalized. If that the case, the bank will not make any repairs. Lenders are not in the construction business so don't expect them to bend to any requests for repairs. The seller is most likely going through a difficult time so chances are they are not going to make any repairs either. You must be aware of the type of mortgage you are approved for. FHA requirements are very strict and most of the time appraisers will require repairs. If they do, these will have to be repairs that the buyer will have to assume and the bank would have to agree to those terms. Remember that lenders are already taking a loss on the property and may not agree
to requests for repair credits.
When a buyer may not have enough funds to cover closing costs, they usually request a percentage of the seller's profit to cover those costs. Six percent is the highest allowed by law at this moment. Problem is, in a Short Sale scenario, there is no profit. The seller doesn't receive any money on the sale and the lender is already taking a loss. Banks in advance calculate what they are willing to lose. If you request seller assist, chances are the bank may deny your offer and wait for one that is not requesting it or may be asking less of it. Remember, in a Short Sale scenario, the bank is also paying out real estate commission to the buyer and seller agents while still assuming a loss. So, be careful what you ask for!
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