What to expect when purchasing a short sale

A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.

The one thing you can be sure of with regards to these types of transactions, they don’t move fast. Often taking anywhere from 3 months to 3 years to complete. If you are patient and have a flexible living situation, they might be a great way to score a great deal. However if you need or want to move soon, then this type of transaction may not be for you.

There are several common mistakes that people often make when purchasing a short sale:

1. They ignore the properties problems. Often these homes suffer from neglect due to vacancy and the problems only compound over time. Other times a homeowner will take out their frustration regarding losing their home on the property itself.
2. Skipping the home inspection. Just don’t do it unless you are a very advanced homebuyer. It is very easy to underestimate the renovation costs associated with buying a home. More often than not, a short sale is going to be in a more neglected condition than your average home.
3. Buyers will often neglect to investigate if the home has had an unpermitted renovation done or if they are paying cash for the home sometimes they will fail to realize the home in a flood plain.
4. Buyers will lock their rate too early. Often this can lead to rate lock extensions, which are a buyer expense, making their loan much more expensive than it needs to be for their purchase. Often it is just best to float the rate. Its often just not possible to get a loan for a short sale property due to the condition or other variables. If it is ineligible due to the condition of the property, the seller will not be in a position to make the repairs.
5. Assuming they are getting a great deal. Just because its sold as a short sale be sure to consider the house’s condition, inspection, price and value without any emotional investment.

Generally for first time buyers, a short sale is not going to be the best path forward for anyone but investors. Even then, its not always their best move either. If you still insist on going that route, a good realtor will be able to guide you through the process.

Search for short sale homes in Des Moines.

Some other items to consider regarding short sales:

1.  Having only one bank holding a note against a property is much better than two.
2. Lowball offers often get either a slow response or none at all.
3. Sellers with strong financials likely will not qualify. Other times they will be asked to pay the difference.  It is not uncommon for the seller to discover that the lender has inserted language saying that even after releasing the mortgage, the lender can come after the seller for the difference in what is owed—which, for the seller, defeats the purpose of the short sale, and may make the deal fall through.
4. Price is often set by the agents and sellers, not the bank. This means that the bank may reject a full price offer.
5. You should try to identify how much is owed on the property. Lenders favor offers that are at least 85% of the property’s value.
6. Approved prices often have the fastest turnarounds.
7. Some banks will want the strongest buyers, others will want the strongest offers
8. Repairs are almost never done on short sales. The property is generally sold “As-Is”
9. Buyer will pay all closing costs.
10. You must close on time. There is very little leniency from banks for failure to close this type of transaction on time. Be sure your financing is rock solid and that you have everything in and to the underwriters immediately after writing the offer.
11. First offers are often the winner. Short sellers will often approach the bank with the first offer they receive.
12. In addition to working with a real estate agent with expertise in short sales, it’s a good idea to seek advice from a local Des Moines Area real estate attorney who’s experienced in handling legal issues involved with short sale.

While all of these reasons may sound like they should be avoided like the plague – its not uncommon to find a gem of a home and to score a sweet deal. However, if you expect the transaction to go quickly and smoothly, than you may want to stick to simply purchasing from a private buyer.