Tips for buying a short sale: part 2
Tips
for buying a short sale: part 2
President’s
Message
Chris
Sloan
Earlier this year,
I wrote about real estate short sales and included several tips for buyers
interested in purchasing these properties. Since that time, short sales have
continued to play a significant role in the marketplace, with one in six
Wasatch Front homes listed for sale being classified as a short sale.
Because buyers
continually ask me about short sales and what it takes to successfully buy one,
today’s column will include another set of tips to help you have the best
chance for success. Let’s start with the basics:
A short sale occurs
when a bank allows a homeowner to sell his property even though the sales price
of the home will be less than the amount owed on the mortgage. This situation
typically occurs when property values have fallen and a homeowner must sell the
home, usually because of financial difficulties. The short sale prevents the
property from going into foreclosure, which can save the bank money and can
leave a less severe mark on the seller’s credit report.
For buyers, short
sales present an opportunity to purchase real estate at very competitive
prices. While short sales may not be bargain-basement deals because the bank is
trying to minimize its losses, the properties are generally priced to sell. In
fact, some properties are generating so much buzz that multiple buyers are competing
to purchase them.
Because there is so
much interest in short sales these days, it’s important that you submit your
best offer if you are serious about buying a particular home. In general, only
one offer at a time will make it to the bank for approval, so you want the
seller to accept yours if you are in love with the home.
When making an
offer, you want the price to be close to the fair market value of the property.
If you submit an offer with an asking price that is significantly below market
value, it is less likely the seller will accept your offer and it is unlikely
the bank will approve your price. Save time beforehand by asking your Realtor
to help you determine a fair price for the home. That way you won’t be waiting
for months only to have the bank tell you the price is too low.
You will also
increase your chances of having your offer accepted if you don’t include any
contingencies, such as making the offer dependent on whether you can sell your
existing home. Buyers who have their financing in order also have a better
chance of having their offers accepted. If you are pre-approved for a mortgage,
have a large down payment and are ready to close at any time, your offer may
have a better chance than one from a less-qualified buyer.
Once the seller
accepts your offer and sends it to the bank for approval, be prepared to wait.
At a minimum, banks are taking up to three months before approving an offer on a
short sale transaction, and in some cases, the wait is six months. The bank may
also make changes to your original contract, which may require additional
negotiations.
You can also get a
feel for how many delays to expect if you’ve had a title company conduct a
preliminary title search. If there are numerous liens on the property (e.g., a
second mortgage, a home equity line of credit, homeowner’s association dues,
mechanic’s liens, etc.), it is more likely there will be hiccups because each
entity has to sign off on the deal.
Finally, once you
do get approval from the bank, you’ll want to be prepared to close in as little
as 30 days because some banks are adding additional fees if buyers don’t meet
their deadlines. Prevent potential problems by working with a lender who can
close under a tight deadline. Also make sure your home inspector can complete
an inspection on short notice.
Although short
sales are complex transactions, they provide many opportunities for today’s
home buyers. For the best chance of success, make sure you are working with a
Realtor who has experience representing buyers in short sale transactions.