Tips for Buying a Short Sale Home
Buying a short sale home can look like a steal - with prices up to 40% less than the appraisal - until the mounds of paperwork and delays take their toll.
"If you're a good negotiator, you can get good deals," says John Anderson, general manager of Oyezz Real Estate, a Dallas firm that specializes in short sales.
For the 11 million U.S. homeowners who are underwater in their mortgages - meaning they owe more than their homes are worth - a short sale can be a way to get out of a mortgage without paying the high costs associated with a foreclosure.
Proceeds from a short sale are still less than the debt balance on the home, but lenders are willing to accept it over having to do a foreclosure.
But finding a short sale home to buy is becoming more difficult. As the economy improves and home prices increase, short sales are decreasing. Residential, non-foreclosure short sales in the United States accounted for 15% of sales during the first quarter of the year.
Short sales are down 10% from the last quarter of 2012 and down 35% from the first quarter of 2012, according to recent data from RealtyTrac.
Buying a short sale home has its share of roadblocks, mortgage experts say. Among things to be aware of:
1 - Be patient
Short sales can take 90 days or more to complete, mostly because banks are slow, bureaucratic businesses that are doing their due diligence to ensure the borrowers can afford the home, Anderson says.
"If you're buying a short sale, you need to be ready to wait," he says.
A Realtor who isn't expert with short sales could take six months or more to complete a sale, he says. Remember, you're dealing with a bank in a short sale, not just the seller.
2 - The bank will counter
Just because you're willing to pay the full short sale price that the seller's real estate agent is asking for, don't expect to get the house, Anderson says. Even if the asking price is met, banks will return and request a higher price, he says. Come in a little low and be prepared to counter-offer more than your original offer.
"'How can you counter more than you have it listed for?'" buyers will ask, Anderson says. "Well, the bank can do whatever they want to because they're taking a loss on the home."
3 - Don't expect the bank to pay for extras.
In the past, sellers might have paid for home warranties and the closing costs of buyers, but no more, Anderson says. "The banks know they can get a buyer without any assistance," he says.
Also don't expect repairs or repair credits. The property will likely be sold "as is," and the seller has likely cleaned it and fixed it up as much as they're going to.
4 - Cash rules.
Having all-cash when buying a home is always preferred, but especially preferred when buying a short sale house, experts say. Cash can especially help if the appraised value comes in lower than the price, says Ken Sama of the The Millennium Consulting Group in Las Vegas, which specializes in short sales. The appraisal price may be a problem with a home loan, but shouldn't be for a cash buyer, Sama says.
He also recommends having more money in your bank account in case the appraisal comes in low and you have to pay the difference.
5 - Be prequalified and approved for a loan.
This is important even when doing a regular sale, but in a short sale it can help speed the process, Sama says. Loan approvals that are underwritten are best, he says, and be prequalified through two different banks so you have a back-up lender if something goes wrong.
6 - Do a records check.
For fewer headaches when buying a short sale house, it can pay to search public records, says Dana Blickensderfer, director of marketing and public relations at Blick Law Firm in Tampa Bay, which deals with real estate law in Florida.
Do a title search the make sure the property is free of liens or judgments, check with the homeowners' or condo association to ensure property dues have been paid, and make sure property taxes are paid, Blickensderfer says. If any of those fees aren't paid on the short sale house, you'll have to pay them as the new owner.