By now, most people have had an encounter with a short sale. But there are some misconceptions still. So let’s review what a short sale is just to make sure everyone understands.
A short sale is a home for sale where the owner owes more than what the home is worth. As an example, the home is worth $200,000 and they owe $250,000.
In the case above, the lender will need to be contacted and they will have to approve the sale of the home. The lender has the power to approve or disapprove the sale.
The not so “short” part is that they can take months to respond. But you should probably expect that it will take 2-4 months for the bank to answer. During that time, it is pretty common for a buyer to look for another home. Most people just don’t want to sit around waiting. If you do find a different home, you can back out and for any reason prior to bank approval.
Once in a while, there is an approved price. This means that the seller’s bank has already identified the price they will take. Usually because the short sale process was started, but the previous buyer backed out. If you are offering on a short sale that is an approved price, it will go much faster.
** Pro Tip ** When buying a short sale, make sure that your inspection period doesn’t start until the bank approval is received. You don’t want to start inspections before it is approved, or you could just be wasting your money.
In today’s market, a lot of buyers want to have the seller pay the closing costs. The problem is that the seller does not receive any proceeds. They will often walk away from the transaction with no cash. So they just don’t have the money to pay it. The trick is in the wording. You need to ask for the seller’s bank to pay the closing costs. We have used this technique many times successfully. But it has to be in the initial offer.
Repairs are pretty tough to get done at the other party’s expense. Usually the seller won’t do any because they can’t afford to. The sellers Bank doesn’t want to do them.
Reality is that the seller has not been doing repairs and maintenance. They are going to lose the home, and they tend to not spend any money on the home because of it.
If the home needs repairs, there are a few solutions.
- Do them yourself. You need permission form the seller but they usually approve. There are risks associated with this.
- Do an escrow holdback. More on this on a different post.
- Pay cash. Then you won’t have required repairs from your lender.
You can get a good deal on a home with a short sale. But you will have to be patient. The word short has nothing to do with how long they take. It is the fact that the payoff is short of what is owed.
If you are having trouble finding the right home, make sure you are looking at short sales. Some agents don’t even show them because they are difficult to deal with.
Want more information on a short sale? Check out this page.