A short sale is when a seller, often caught in financial distress, sell their home for a price that won’t cover the cost of the outstanding mortgage. It is often their only option. However, it leaves buyers with the opportunity to buy a home below it’s current market value, which can sound enticing. But short sales are often much more complicated, and not as “short” as their name would allow you to think. Short sales can even end up costing you more than a tradition sale.
So before you jump into putting an offer on a short sale, know what it is you’re getting into just in case the lender accepts your offer. Keep reading to find out the biggest risks involved in short sales, so you can figure out if it’s right for you. And click this link to read the entire article.
The sale could take months … or longer
Though the name might suggest otherwise, short sales are anything but short.
“Time is the biggest con,” says Noreen Parrell, a Realtor® with Better Homes and Gardens Rand Realty in Briarcliff, NY.
A short sale can drag on because of a third party like the seller’s mortgage company. In addition to getting approval from the buyer and seller, short sales also need to be approved by the seller’s mortgage company since it has agreed to take a loss on the loan.
Like many corporate institutions, these lenders don’t move quickly. “You could be waiting three to six months before the bank even accepts your offer,” Parrell says.
Many different parties will need to review the agreement and decide if your proposed sale price is acceptable. So be prepared to wait, especially if you live in an area where this type of sale is common.
While waiting for the sale to move forward, you could miss out on other more secure buying opportunities. So weigh the risks.
Buying a home as is can be costly
In a typical home sale, there’s a contingency period in which the buyers are able to perform inspections on the property. Afterward, they’ll negotiate with the sellers on any repairs that should be made in order to ensure that the property is in safe and livable condition. Typically, the sellers will either have the repairs made by a qualified professional or give the buyer a credit to go toward having them done after settlement.
However, “on a short sale, what you see is what you get,” says Sandy Straley, the broker with Rindlesbach Homes and Sunview Homes in Layton, UT. “You do not know about the condition of the mechanics of the house (plumbing, heating, cooling, and electrical) and how well they operate. There are no warranties on the property,” she says.
This is known as buying the home in “as-is condition,” meaning that whoever buys the property also agrees to inherit financial responsibility for any of its problems. Buyers of a short sale should be prepared for the possibility of structural problems, pest infestations, or any number of potential issues that might end up driving up the home’s cost over time.
Keep in mind that there’s also no guarantee you’ll know what the home’s problems are upfront. While some banks allow interested parties to perform inspections on the home for their own benefit, others might reject any offer that elects these contingencies. Since the banks are already taking a huge hit on the sale price, some won’t want to risk allowing a potential buyer to walk away after learning that a property requires extensive repairs.