Purchasing a short sale home might be a smart option for buyers on a budget or for retirees looking to buy a second home. A short sale typically occurs when a homeowner decides to sell their property for less than what they owe the bank on their mortgage. This often happens when owners face unforeseen financial difficulties and want to avoid having the property go into foreclosure. Because the homeowners are highly motivated to sell, buyers may get a great deal on the property.
While saving money on a home sounds great, there can also be some unique challenges to buying a short sale home—like complex paperwork and lengthy approval times. We’ve put together a guide to the pros and cons of buying a short sale home and tips on how to better navigate the process. Read on to find out if purchasing a short sale home might be the best option for you!
What Is a Short Sale?
A short sale happens when a home goes on the market for less than the current balance left on the mortgage. These types of sales often happen when a seller has financial difficulties and may be behind on mortgage payments. Typically, a short sale is the seller’s last option before the bank seizes the property. A short sale damages the seller’s credit less than a foreclosure.
Both the homeowner and lender have to agree to a short sale before the home is ever put on the market. However, banks and lenders are often open to short sales. They’ll lose less money selling a home through a short sale than foreclosure.
Preparing to Buy a Short Sale Home
If you’re considering a short sale home, one of the best ways to prepare for the buying process is to get all of your financing in order beforehand. Securing financing and getting pre-approved for a mortgage before you submit an offer to a seller is extremely beneficial for buyers. It can help expedite the process dramatically and look favorable to lenders.
Getting approval from a bank for a short sale can take a lengthy amount of time because it usually means the lender will have to accept a price lower than the house’s mortgage. But having proof of financing upfront is very appealing to lenders and can help prevent delays.
Finding a Real Estate Agent
If you’re interested in purchasing a short sale home, it’s important to find a real estate agent with short sale experience. An experienced agent can guide you through the complex process from start to finish and provide the knowledge and support it takes to navigate short sales. They will know the best ways to negotiate pricing with lenders, what mistakes to avoid that could potentially stall the sale, and how to protect your best interests as a buyer.
Knowledgeable agents also know exactly where to look to find short sale listings. The amount of short sale listings fluctuates based on how well the housing market is doing. There are normally fewer options available when the market is down, and an agent’s unique insight on finding listings will give you an advantage over other prospective buyers.
Having someone with this particular set of skills will save you both time and money in the long run. So what should you look for to find a qualified agent? Most agents who specialize in these types of sales will have a Short Sales and Foreclosure Resource (SFR) certification from the National Association of Realtors.
The Short Sale Buying Process
Now that you’ve found the right real estate agent, it’s time to start looking for the perfect home to suit your budgetary needs and lifestyle. Once you’ve found a listing that piques your interest, there are several factors you’ll want to consider before making an actual offer to the buyer.
Investigate the Condition of the Property
One of the main factors is the home’s condition. It’s extremely important to pay close attention to the condition of the property as short sale homes are usually sold as-is. This means you won’t be able to negotiate any repairs or added costs with the buyer. Therefore, it’s imperative to hire a home inspector who will thoroughly examine the home for any issues so you won’t have unexpected, costly repairs. This can add more time to the entire buying process, but it’s well worth the additional waiting period.
Make an Offer
If all the inspections and appraisals go well, your real estate agent will then submit an offer to the buyer on your behalf. If the seller accepts the offer, they’ll need to prepare all the necessary documents to send a proposal to their lender, who also needs to approve the short sale before it can move forward. This is the part of the process that can be the most time-consuming, as there is no set timeline for when the lender has to respond to the request.
Working with the seller’s lender and getting approval from the bank can often take several months or up to a year because the lender will want to take their time to do enough research to make sure they’re getting the best deal they can on the property in the current market. They will also consider any other offers from potential buyers. Also, a lender may deny the sale if they think they can get more money for the home from foreclosure than a short sale.
Wait for Lender Approval
While waiting for approval from a lender requires a lot of patience as a buyer, the lengthy process can often work in a buyer’s favor as it will help eliminate added competition from other buyers who need to purchase a home quickly. Having your finances already in order will drastically help during this part of the buying journey.
If an initial offer is denied, your agent can work with the lender to negotiate a counteroffer. If both the seller and the lender approve an offer, the closing process begins.
Navigating Potential Challenges
While getting a reduced price on a property sounds like a great idea, several challenges can arise during the process of buying a short sale home. Using the term “short sale” can be a bit deceiving as the process is typically not “short” at all. Even though buyers may be compelled to sell quickly, there are more complexities to buying a short sale home than a normal property.
Additionally, the complex paperwork is one of the biggest challenges buyers and sellers will face during a short sale. A short sale proposal requires a lot of specific documentation, including proof that the seller is indeed in financial distress and a short sale is the only option available to move forward.
From there, lenders may present a challenge and hold up proceedings, trying to find better alternatives to a short sale, which can draw out the process by several months and feel quite daunting to buyers. But, this is where having an experienced agent can come in handy. They’ll know all the specifics required by lenders and be able to foresee potential challenges that may arise. They’ll also be able to set realistic timelines and help manage your expectations as a buyer.
Another potential challenge is finding out the property is in bad condition and the necessary repairs will be costly. To avoid this, make sure you schedule a home inspection early in the process.
Finalizing the Sale
To ensure a smooth closing process for a short sale home, have all your finances and paperwork in order and have a knowledgeable agent who’s experienced in short sales to oversee all the little details. You’ll also want to have realistic expectations about the amount of time it could take to complete the sale.
Short sale homes can be a great option for buyers who want to purchase a home below market value. Just be sure you don’t mind that it could potentially be a lengthy process.
A 55places.com Real Estate Expert Can Help!
Does purchasing a short sale home sound like the best option for you? Let us connect you with a local real estate expert to help you navigate the entire process and make your homebuying journey easier. Contact 55places.com to connect with the right agent for you!
