A short sale occurs when a homeowner is in danger of foreclosure and they come to an agreement with their lending institution to sell their home for much less than what they owe on it. The bank forgives the remainder of balance. These types of sales are becoming more and more popular in the mortgage industry as more homeowners face the danger of foreclosure and they look for alternatives that are acceptable for both the homeowner and the lender.
Some realtors advise their clients that short sales are a bad idea and they should never purchase one of these properties. Other realtors advise their clients that a short sale is a good idea if they know what they are getting into. Here are three things that you should know about buying a short sale so you can make an independent decision that is right for you.
The Majority of Short Sales Do Not Close
Buying a short sale can be frustrating. If you are in the market for a home and you search through the listings that are available, you may find a short sale home at an incredible price. It can be exciting thinking that you are going to get a huge bargain on a home that you are going to love. But just because a short sale home is listed, doesn’t mean it’s going to close. In fact, only about 10 percent of the short sale homes actually close because the seller and their lending institution often cannot agree on a price for the property. Short sale listings are typically subject to lender approval so you may get your hopes up only to have them dashed.
It Can Take Up to Four Months to Close a Short Sale
A short sale transaction typically takes a long time to close. That is because there are three parties to deal with - instead of just two with a normal home purchase. The three parties include you and your agent as the buying party, the homeowner as the second party, and the lending institution as the third party. The seller and the lending institution have to come to an agreement on the price of the sale before it can be sold at any price. Unfortunately, this agreement often happens several weeks or even months into the purchasing process, if an agreement is even reached at all.
Short Sales Are Not Always the Bargain They Seem to Be
Finding a short sale that has an incredible price is very common, but have you researched the surrounding area and comparable sales to see if that price is really such a steal? Often the short sale is priced at or even above the sale prices of other homes in the area. And since buying a short sale is generally more of a hassle than doing a traditional purchase for a home, the price may not be worth it. If you find a short sale home with a great price, check housing comparables in the same area. You may find a better bargain elsewhere.
Now that you know a few more things about buying a short sale, do you think it is the right path to home ownership for you?