What is a short sale?
You often hear the term “short sale” in today’s market.
What is it?
A short sale is when a property is being sold or offered for sale for less than what is owed. The lender always has to approve these sales because they are taking a loss on the loan.
When does it happen?
Most homes being offered as short sales are in the process of foreclosure but have yet to reach the auction. Banks are increasingly looking at short sales rather than going all the way through the foreclosure process. There are different reasons why homeowners could be in a short sale situation. They could have bought too high and values soften, taken the ”equity” out from an overinflated refinance appraisal, carried a construction loan too long, etc. Short sales were rare when the market was appreciating but as market values soften more homeowners are finding themselves not able to sell except at a loss.
Be aware of the asking price:
You will often see “short sale” homes advertised for a great price- after all the homeowner doesn’t care if the bank takes a $5,000 or a $50,000 loss. But just because you see a home advertised at a certain price doesn’t mean that lender will approve that amount. However, while the asking price may or may not be reasonable to the bank, the bank often will approve a sales price that is at least a little below market value.
The biggest drawback buying a short sale:
The biggest drawback in dealing with short sales for a potential buyer is time. It can take 4 to 12 weeks to get lender approval. Even longer as the lender’s desk gets more and more of these requests. I have seen many times buyers on the line for 8 weeks to find out the lender denied the contract sale price- often putting them back at square one or paying a higher price than they anticipated.
Should I pursue buying a short sale?
If you are in no rush to buy and you are very patient- then short sales can be a great route to explorer for a deal. If you are considering buying a short sale, you should consider some language in the contract to allow you to back out until you have lender approval. That way if another opportunity presents itself or you find that you have waited for months with no light at the end of the tunnel you have an out.
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Related posts:
- 5 Reasons to buy bank-owned over short sales
- What Makes Up Closing Costs?
- About Idaho Foreclosures
- First Time Home Buyer FAQ
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