ORLANDO, Fla. – Oct. 24, 2016 – A foreclosure or short-sale home might tempt a buyer with the promise of a great deal, but it's important for buyers to avoid common mistakes.
A short sale occurs when a homeowner sells a house for less than the amount owed on the mortgage, so the lender doesn't get all its money back. Many homeowners facing foreclosure – a common precursor to a short sale– don't want to leave their homes, and some take their anger out on the home or completely ignore structural and safety issues that should be addressed immediately.
Typical buyer short-sale problems
1. Ignoring the obvious The house is in a great part of town with good schools, and the price is significantly lower than anything else nearby. Some buyers want to live there so much that they ignore the little things – like the kitchen floor that gives a bit and they don't want to entertain the idea that it might be termite damage.
2. Skipping a home inspection Buyers should be part of the home inspection. "Most of what we do is education," says Kathleen Kuhn, president of inspection firm HouseMaster. She says buyers should ask how much a problem would cost to fix, or make a note of the problem and find out later. "Every homeowner underestimates how much renovation costs," says Kuhn.
3. Ignoring legal and insurance information Have all renovations been permitted and approved? Is the home in a flood plain? In a short sale, the home's current owners may hold back a bit on doling out information.
4. Assuming it won't take long A short sale usually takes longer than a normal home sale transaction, and sometimes a lot longer. In some cases it takes a bank time to decide; in many cases, employees have a lot to get done, and that one short sale could sit in their to-do box for a while.
5. Falling in love "Think of yourself as an investor," says Jim Randel, real estate investor and author of "The Skinny on the Housing Crisis." Don't let emotions override logic. How much could you earn monthly if you rented out the property? How much will it cost to rehabilitate the home? Many buyers love a house when they buy it, but their emotions change later after they've put $40,000 into repairs.
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