Buying a short sale may or not be the way to go. If you are patient, not in need of immediate housing, and have a good Realtor, you may get the bargain of a lifetime. The advantage of buying a short sale as opposed to a bank owned property is usually the condition of the property.
Usually, in a short sale situation the home owner still lives in and maintains the property. A bank owned is often abandoned and many times appliances and fixtures have been removed, utilities are off causing mold and mildew, the yard is unkempt, and the home is generally in need of somewhat extensive repairs. When you get the contract, the bank inundates you with addendums that you know are strictly to protect the bank, and as we usually advise when you purchase a bank owned property, consult an attorney, so that, is an additional expense.
A short sale is very different. The homeowner is still the seller, although the bank must approve the price because they are agreeing to take less than the mortgage balance owed as a payoff. If there is a second mortgage holder involved, it even becomes more involved. In that case both lenders must agree to accept less as a pay off. The second lien holder is in a very week position because if the first lien holder forecloses, the second lien holder will get anything. That is why the second lien holder will usually accept a very deep discount, as much as 90 or 95%.
One of the biggest problems is the time factor. It may take as much as 45 days to get a response or a counter offer from when you first submit your offer. That is where very often a good agent on both sides of the deal can help. On the listing side we use an attorney, at no cost to the seller, which helps speed up the process, so the buyer doesn’t get impatient and move on to another home.
Another big problem is inexperienced or unethical agents that price the home way below the market to increase traffic, knowing the price they are advertising is not even close to what the bank will accept, and that just confuses buyers and slows down the process. Banks will discount the property below the market, but within a reasonable range. Buyers look at these properties that are priced 50% or more below the market and can’t understand that if they offer full price, the offer wasn’t accepted.
Everyone wants to offer less, based on asking price. The asking price on a short sale may not even be close to reality and no indication what the home actually will bring on the open market. If you are making an offer on a home in a market like this, be realistic. Have your agent do a thorough evaluation on the market price of the home, and then offer 20-30% less to start. Be prepared for a counter offer the banks know what they are worth and although they are discounting, they are not giving them away.
This is a buyers market, but that doesn’t mean you are the only buyer out there. There are many buyers out there. Buyer activity is getting very strong and it is not uncommon to find multiple offers on a property and even have it sell above the asking price.
The best advice we can give you is be cautious, use a qualified, experienced Realtor, and