Short Sale - Part 2: How to Buy a Short Sale Property!
If you're not familiar with Short Sales, begin by reading Part 1: What is a Short Sale? Then come back to this article which takes the next step and explains how to buy a short sale.
So, how are Short Sale Properties Sold? They are listed with a real estate agent like other properties. They usually include the words "short sale" or "pre-foreclosure" in the property description section. Since the current homeowner is in a difficult financial situation, they are usually sold "as is". It's a good idea to contact a local real estate agent who is familiar with how to buy a short sale and ask them to set you up on a custom search which includes short sale properties. You can also search for properties on-line, although not all searches allow you to narrow your search to just short sale properties. Our property search is a good example of one that allows buyers to search for "foreclosed" properties in central Indiana, and the property detail page will state if the property is bank owned or a short sale (pre-foreclosure).
Potential buyers schedule a showing with their real estate agent to view the property. Unlike bank owned properties, many homeowners continue to live in the home while it's on the market, so if it's occupied, try to allow 24 hours notice to schedule an appointment. All offers are prepared and submitted to the buyer through a Realtor, in the same manner as a normal property sale.
So far, it seems like other real estate purchase -- right? So, what's the big deal? From here until closing.....it's anything but a "normal" transaction!
- It's contingent on bank approval: On a short sale, the homeowner still owns the home -- not the bank, but because the bank will be accepting a payoff of less than the mortgage balance, a Purchase Agreement that has been accepted by the homeowner will still be contingent upon Bank Approval.
- Normally the bank will not accept an offer with contingenciesother than financing approval or inspections: For example, it isn't acceptable to make your offer contingent on the sale of your existing home. Offers need to be "uncomplicated". Don't ask for delayed closings, personal property, warranties, etc. You may be up against other offers -- make yours as "clean" as possible.
- It usually takes much longer: Keep in mind that banks are overwhelmed with these right now and it may take as long as several months for the bank to respond back to an offer. During that time the listing real estate firm will continue to market the property and take other offers. A short sale buyer must have a lot of patience and the flexibility of having somewhere else to live while waiting on the bank approval.
- The property condition is questionable: Some are in excellent condition, but because the owner's finances may have been strained for some time prior to a short sale, general maintenance and repairs have often been neglected. Sometimes they have been abandoned or vandalized.
- The Bank takes back-up offers: Because the bank may take a long time to accept an offer, the listing agent will continue to take "back-up" offers. Is it a wast of time to make a "back-up" offer if there are other offers ahead of yours? Not necessarily. Often buyers get frustrated waiting on the bank and decide to move on to other properties. If you're willing and able to wait, they may get to your offer, then again, they might accept the initial offer and you've wasted a lot of time when you could have moved on to another home yourself.
- Inspections: The buyer can have the property inspected, but be prepared that the homeowner is usually not in a financial position to make any repairs and neither will the bank. So why have it inspected? You want to know what you're buying. In Indiana, the purchase agreement contract still allows the buyer to walk away from a deal without losing their earnest money if the inspection discovers something substantial which will effect the value of the property.
- The Banks like to close quickly: Although the banks often take their time approving an offer, once they do, they will want to close quickly, so the buyer must have their financing in order.
As you can see, it may take significantly longer to buy a short sale, the condition of the property may be questionable and there are definitely added frustrations working through the bank's red tape. You could wait months just to have the bank turn down the offer, accept someone else's offer, or see the property continue on to foreclosure and Sheriff's sale. So the real questions is.....Is it worth it? Can you get a good deal? Come back for Part 3!
Part 3 - Are Short Sales Good Deals?
Part 4 - Can You Sell Your Property as a Short Sale?
Unless otherwise noted, blogs are authored by Tonda or Steve Hoagland