5 Things To Know Before Buying A Short Sale
Many buyers tend to be interested in short sales because they’ve heard that they are a way to buy a home for less than its market value. While that statement is true, navigating the short sale process is often tricky and may not be right for everyone. With that in mind, I’ve laid out five things you should know before buying a short sale. Read them over to give yourself an idea of whether or not this method of buying a home is a good fit for you.
What is a short sale?
In real estate, a short sale occurs when the lender agrees to let the seller sell their home for less than they owe on the mortgage. The name comes from the fact that the bank comes up “short” on what its owed.
Often, banks agree to take this loss as a way to avoid having to repossess the home through foreclosure, which is a lengthy and time consuming process. In return for agreeing to go through the short sale process, sellers avoid taking the credit hit that comes along with having their homes foreclosed on. That said, though, it’s important to note that a short sale will still have some negative impact on your credit score.
The process is much different from a traditional sale
From the seller’s prospective, before the short sale process can begin, the bank needs to be given documentation as to why a short sale is necessary. This can include: copies of your most recent pay stubs, tax returns, W-2’s, and bank statements, as well as a hardship letter, which explains the financial circumstances that led to needing to sell the home for less than what is owed.
From a buyer’s perspective, though you’ll negotiate with the seller first, your offer ultimately has to be approved by the bank. No short sale can proceed without lender approval. Once you submit an offer and it’s accepted by the seller, the listing agent will send it to the bank, along with copies of your financial documentation for approval. Some lenders also have specific short sale applications that you may need to fill out as well.
You’ll want an experienced agent
Since the short sale process comes with its own paperwork in addition to the traditional sale documents, no matter which side of the transaction you’re on, you’ll really want to focus on working with a real estate agent who is experienced with this type of sale.
He or she will be able to guide you through the intricacies of the short sale process much easier than an agent who has only done a short sale or two in the past. While you’re in the process of interviewing agents, be sure to ask about the level of short sale experience that they can bring to the table.
The home is being sold “as-is”
With a traditional sale, after all the inspections have been conducted, buyers have a chance to renegotiate with the seller based on any findings in the inspection reports. They can either ask for repairs to be made or for credits towards making repairs in the future. With a short sale, this is not the case.
Since the bank is already losing money on this transaction, they’re not going to be willing to negotiate any further. This meas that, when buying a short sale, you’re often buying it in “as-is” condition. As-is condition means that the buyer must accept financial responsibility for any necessary repairs.
In addition to repairs, sometimes short sales stipulate that the buyer must also be willing to accept responsibility for any liens or judgements against the property. As the buyer, it’s in your best interest to have a title search done on the property so that you know what, if any, extra financial obligations buying that home will entail.
Approval can take a while (and there’s a chance it may not work out)
In a regular sale, the buyer will often get a response from the seller within a day or two of submitting the offer. From there, if the offer has been accepted, the transaction can move forward. Often, it’s possible to close on the home within 30-45 days of writing up the offer. However, in a short sale, the process takes much longer.
As explained above, in a short sale, the seller does not have the final say over whether or not to accept an offer. Instead, it must be accepted by the seller and then go to the bank, where several other levels of approval are often required. This approval process can take several months to complete and, unfortunately, there’s a chance that the offer could ultimately be rejected, even after months of waiting.