MICHELLE L. MAYO - REALTOR

Short Sales for Buyers

Certified Distressed Property ReportIf a home is being sold for less than what the seller owns on the property, this is considered a short sale.  Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home and declining home values in a slower real estate market. Click here to see some FAQ’s about Short Sales

A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You’re a good candidate for a short-sale purchase if:

  • You’re very patient – Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender(s) must approve the sale before you can close since they will be taking a loss.  The approval process can take anywhere from two to four months and sometimes longer.
  • Your financing is in order – Lenders like cash offers. However, if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you’re preapproved, have a down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
  • You don’t have any contingencies – If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you’re serious about purchasing a short-sale property, it’s important for you to have expert assistance. Here are some people you want to work with:

  • Experienced real estate attorney – Only about two out of five short sales are approved by lenders. But a good real estate attorney who’s knowledgeable about the short-sale process will increase your chances of getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.
  • A qualified real estate professional – A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy and smooth communications with the lender.

Some of the other risks faced by buyers of short-sale properties include:

  • Potential for rejection – Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counter offer, which will lengthen the process.
  • Bad terms – Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
  • You are purchasing the property “As Is” – You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repairs or credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for all involved.