Buying a Short Sale
For homeowners who owe more on their properties than they are worth, a short sale may be the best solution, short of foreclosure. Technically, a homeowner is 'short' when the outstanding loan is more than the current market value of the property. A short sale occurs when the homeowner finds a willing buyer and then negotiates with the lender to accept less than the full balance of the loan at closing (typically to avoid foreclosure). Once the buyer closes on the property, the property is considered 'sold short' of the total value of the loan. The process for obtaining lien holder approval requires patience, but it can yield favorable results for all. Organization and full disclosure will also help you manage through the process.
In the past it was rare for lenders to accept short sale proposals. With overwhelming market shifts and changes in corporate policy, lenders have become much more willing to work with homeowners in distress. Since a short sale generally costs the lender less than a foreclosure, it can also be a way for the lender to reduce their losses.
To qualify for a short sale, homeowners must prove a financial hardship exists, such as unemployment, a reduction in income, a health crisis, divorce, or death. The borrower must demonstrate that continuing to pay the mortgage poses a serious financial hardship. To do this, the seller must provide documentation of assets, as well as income and expenses. If the lien holder determines that a hardship exists, it will approve the short sale.
Why Buy a Short Sale?
Buying a property in short sale can be a big hassle, so why consider it? Properties that are being short sold generally are in better condition than foreclosures, especially if the owners are still occupying the property. The owner in default typically plays an active role in the short sale process, which means you will have their cooperation (unlike a foreclosure). Sometimes the home you really want just happens to be a short sale. Do not be deterred by the process, as these types of deals are very doable.
Before You Purchase
When dealing with the short sale process, there are a few things you need to know beforehand:
- All offers are subject to approval by the lender regardless of the homeowner's acceptance.
- Lenders are likely to have their own appraisers evaluate the property, which may affect the potential bargain.
- Each lender follows its own set of procedures when it comes to short sales, which might make the process confusing and frustrating.
- Many lenders require short sales to be 'as is' transactions, where credits for repairs are typically not negotiated or allowed.
- On average, short sales can take significantly more time to close than a traditional transaction, so patience with the process is absolutely essential.
Working with Representation
Whether you are a first-time homebuyer or experienced investor, it is always wise to work with a REALTOR® when dealing with short sales. Rest assured, I have closed deals on over one hundred short sales in my real estate career and am fully capable of guiding you through the process.
Make an Offer
An experienced REALTOR® will be extremely beneficial at this juncture in the buying process. Here are some key factors in a successful offer:
- Short sales are commonly multiple offer situations. Be sure to factor into your offer that there is likely to be more than just your offer up for consideration.
- Your offer should always be contingent upon the lenders approval within a set time frame.
- Use an addendum to outline any contingency terms and conditions. Remember that most short sales are 'as is' and a lender will grant few, if any, repair requests.
- Even though most short sales are 'as is', it is still crucial to conduct a home inspection. You should assess the bargain potential of a property by adding the cost of repairs to your total offer.
This information is meant as a guide. Although deemed reliable, information may not be accurate for your specific market or property type. Please consult a REALTOR® professional for more information on making a written offer.
Broker CalBRE Lic#01519105
Jeff Green - Allison James Estates & Homes
210 South Sierra Avenue Ste 6