Short sales can offer significant discounts for homebuyers, but are notoriously difficult to complete. However, that may be changing.
New figures from RealtyTrac show that pre-foreclosure sales are rising significantly, while sales of bank-repossessed properties are declining. That suggests lenders, seeking to clear out a backlog of distressed properties, are becoming more willing to accept short sales as an alternative to foreclosure for financially distressed homeowners.
Not only that, but they're also accepting bigger price discounts than they were last year compared to standard home sales, meaning the potential savings are even greater than before.
Getting the approval of the lender holding the current mortgage has always been the major obstacle to completing a short sale. Many homebuyers just don't care to bother with them because the process can be so frustrating, often taking three or four months to complete, with harrowing negotiations over price.
But with lenders relaxing their demands, short sales become a more attractive option for bargain-hunting homebuyers.
Savings can be considerable
There are a lot of things to like about a short sale from a homebuyer's perspective. First, you get the home at a significant discount - the average sales price on a pre-foreclosure home was 21 percent below the average on non-foreclosed properties in the first quarter of 2012 (By comparison, the average discount was only 16 percent in early 2011).
That's not as big as the average discount on a bank-repossessed home (REO, or real-estate-owned, in industry parlance), which is presently running about 33 percent below the average non-foreclosed property, according to RealtyTrac. However, you're getting a home that usually has been occupied up to the time of purchase. Bank-repossessed homes often stand empty for extended periods, sometimes a year or more, before they are sold, and can deteriorate during that time.
Also, foreclosures are often stripped of valuable items such as appliances or even deliberately damaged by resentful former owners, which isn't likely to happen with a short sale.
Finally, you're getting a home that the former owner is surrendering voluntarily, rather than being forcibly evicted through foreclosure. Many homebuyers are much more comfortable with that, particularly if it's a property they're buying for their own home.
A few cautions
If you're going to pursue a short sale purchase, there are a few things to keep in mind. First, it helps to work with a real estate agent who's experienced with short sales. Second, make sure you have a good idea of the actual value of the property - the bank holding the current mortgage will want to recover as much value as it can, so it's up to you to determine whether you're getting a good deal or not.
Third, remember that in a short sale you'll often have to pay for many of the closing costs the buyer normally assumes. It's also unlikely that the seller will be willing to do repairs or improvements as part of the deal, as is common with standard real estate transactions. The whole reason for a short sale is because the buyer can no longer afford their mortgage and the bank is taking a loss on the property, so it's not likely that either will be willing to absorb any more expenses. Keep that in mind when negotiating the price.
Finally, you have to be patient. Although lenders may be taking a more flexible approach toward short sales than in the past, it can still a few months to get one approved. Don't be surprised by occasional delays or if the lender throws in a new demand late in the process. But if you can put up with all that, a short sale can be a great way to get a real bargain in the current housing market.
Originally published on MortgageLoan.com at: https://www.mortgageloan.com/short-sales-getting-cheaper-easier-9085