13 July 2009

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.

 

 
 
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