Today, January 21, is National Own Your Own Home Day! Many homebuyers have anxiety, especially when it comes to short sales. Below are a few tips and tricks that I usually share up front with any buyer considering purchasing a short sale. If you are prepared, it can result in a great investment for your future!
Patience is Key
Is it worth the wait? A short sale can be a great deal for you as a homebuyer, but be prepared to wait it out and be flexible about when you can close on the house. The majority of short sales take, on average, three to four months. Less than a quarter of short sales nationwide close with the original buyer, because he gets annoyed with the process. Banks are working on ways to make the process faster and more user-friendly, but in the interim you should have a clear picture of what to expect when you put in an offer on a short sale.
Short Sale vs. Foreclosure.
The terms “short sale” and “foreclosure” are often used interchangeably, but the fact is they are VERY different. In a short sale, the seller is usually very proactive and trying to avoid foreclosure by working out a deal with the bank. The seller is involved from start to finish and still owns the property. A short sale also has a more mild result on a seller’s credit. When you purchase a foreclosed home, the bank has already foreclosed on the previous owner and now it is owned by the bank. Therefore, the overall time from contract to closing is usually much faster than a short sale. With a short sale, you can take out another home loan in as little as two years, compared to a foreclosure which stays on your credit report for up to 10 years.
Is it a Diamond in the Rough?
Not in all cases, but often a short sale home is in need of repairs and maintenance. The seller either does not have the means to maintain it, or they have moved elsewhere and know that they will not be recouping any money, so they choose to no longer maintain it. If you’re considering purchasing a short sale, check out the property thoroughly and hire a certified inspector you trust to inspect it from top to bottom. Many short sales are sold “as-is,” so asking the seller or bank to repair any damage is usually not feasible. When making an offer, take into consideration the necessary repairs that may be needed to get a loan and budget accordingly.
Is the Price Too Good to be True?
Price is an important factor to consider when you are planning to make an offer on a property.Banks want to sell houses, but they do not want to be robbed in the process. A short sale listed price is discussed and set between the seller and the listing Realtor. Depending on the listing Realtor and seller’s philosophy, the price is either set close to market value, attempting to get the best price for the home, or set drastically too low. So low that the bank will never consider actually accepting the offer. This is sometimes done in order to get an offer so that the ball is rolling with the bank. The bank will usually counter offer, which then gives us an idea of what the bank will actually take for the house. This means if your Realtor tells you it is a crazy low listing price, be prepared to pay closer to market value or pass!
Navigating Through the Red Tape
The listing Realtor and seller talk and set expectations about how a short sale will be handled when the Realtor lists a property.Will only one offer or multiple offers be accepted and passed on to the bank? Will they be continuing to market the property once an offer is in place? Is there a third party negotiator or attorney that is communicating with the bank? Will they take back-up offers? In order to win the short sale game, you have to know the players and the plays. Although Realtors are required by the Realtor Code of Ethics to treat everybody fairly, not every agent is a REALTOR. So make sure you are working with a Realtor that can guide you through the process! Happy home buying!
Gia Arvin is a past president of the Gainesville/Alachua County Association of Realtors.