Are you looking to buy a home? Are you thinking that now’s a great time to find bargains? It is a great time to buy a home, but there are some things that you should know about short sales before you rush to write that contract.
What is a short sale? A short sale is when there is more debt owed against a property than the property’s value. In a loan default situation, (pre-foreclosure) the creditor(s) may be willing to agree to allow the property to be sold for less than the loan amount and/or accept less than (or “short”) the amount owed as payment in full.
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.
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.
Submit The Best Offer Price You Can
Many agents are marketing homes as short sales and are pricing them slightly below market. If your offer is considerably below market, the bank may ignore or reject your offer. It is important to remember that they don’t have to counter-offer.
Remember It Is The Lender Who Is In “Price Control”
The seller can accept the offer but the lender must approve the sale. Last minute price negotiations can be expected from a lender on most short sales if your offer price is not acceptable to the lender. More money may be requested from the lender over and above the agreed purchase price between you and the seller.
Home Is Sold “As Is”
You will be required to purchase the home AS-IS. Most lenders demand the buyer to purchase the home as is and will refuse to pay for items such as repairs disclosed by home and pest inspections. Lenders will also not pay for home warranties on the home. It is imperative that you conduct the required inspections on the home; you want to know what you are buying and what repairs (if any) will need to be done.
Give Yourself Enough Time to Close
You can expect closing to be longer than a normal sale or even a bank owned property. Lenders are working with an absorbent amount of Short Sales and foreclosures so be patient.
Initial Offer Response
It could take several weeks or months for the lender to respond to your offer so you will need to make sure you have alternative living arrangements.
Be Prepared For Last Minute Lender Challenges
Most lenders will reserve the right to make last minute negotiations as new market information crosses their desks.
Don’t Submit Offers With Higher Than Normal Closing Costs
Lenders are aware of the standard closing cost. You will want to speak with your mortgage lender and understand how much seller contribution you need. Lenders rarely pay for extras or junk fees and may refuse your offer if the seller closing costs are higher than the norm.
The Seller IS Motivated To Cooperate
Most sellers want to cooperate but if the seller is unable or unwilling to agree to the lender’s request on all the terms then the sale will not finalize.
Don’t Assume That The Seller Can Contribute Towards The Sale
Don’t assume that because the seller is doing a Short Sale that they have money to contribute towards your purchase on the home. Some seller’s have had unexpected hardships such as a death in the family, loss of employment or excessive medical expenses.
Be Patient
In a Short Sale transaction it is important to be patient. Just because you threaten to cancel your offer it will not move your file along any faster. Remember the seller responded timely. You are now waiting on the seller’s lender. Your offer has been sent to a corporate facility with hundreds if not thousands of other offers and will probably pass through several hands before it gets the stamp of approval, but the wait may we well worth it!
Stay In Contact With Your Lender
It is imperative that your lender is aware that you are in the market for short sale properties and especially if you put an offer in on one. Short Sales can take weeks to months to close. Your lender may need to have updated information from you in order to close the loan. You don’t want this to cause a delay in closing. In most cases once the seller’s lender has accepted the short sale offer they require the closing to proceed much faster than their decision making time. They may impose penalties if it does not close on their specified date or they may simplye refuse to extend the closing date.