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Buying A Short Sale: Proceed With Caution
Buying a short sale may seem like a great idea at first—they’re usually listed at a low price, the seller will be extremely motivated to push the deal through, and they’re typically in better condition than foreclosures. However, there are several important things to keep in mind about short sale properties. Is it a short sale at all? Some unscrupulous agents push sellers into listing their houses as short sales, when in fact they don’t qualify. For a property to be a short sale, the owner must prove a hardship to their lender and receive approval. It can take months to close. The amount of time it takes to close on a short sale can vary wildly, depending on the lender's back-log of foreclosures, what paperwork the seller has already submitted, and when the notice of default was filed. It can take anywhere from two weeks to two months to get an answer to your purchase offer from a lender, and even longer if more than one lender is involved due to multiple loans secured to the property. It’s not uncommon to wait a year or more in some cases just to close on a short sale. Consider how long you’re willing to wait for a home, and whether it’s worth it. Closing costs are usually higher. Lenders frequently don’t pay for any extras, unlike sellers in a conventional home purchase process. If you want any additional services, such as specific inspections, you will probably have to pay for them yourself. In addition, occasionally lenders will even refuse to pay for standard seller closing costs such as transfer taxes. Be aware of what extra costs you may have to assume when buying a short sale. Seller motivation varies. Although many sellers are anxious to be rid of their burden, others may have little to no motivation since a short sale is a credit hit almost as severe as a foreclosure. Others may have nowhere else to live lined up, and will drag out the process by sending in paperwork late, or just “forgetting” altogether. Inexperienced listing agents. Does the listing agent have other short sales listed? Have they completed one before? There is a large amount of complicated, time sensitive paperwork that must be properly filled out and submitted to the lender, and it can easily overwhelm agents dealing with a short sale for the first time. It also requires a certain tenacity, since your file can languish on the desk of a frazzled negotiator for weeks without the listing agent checking in frequently on its progress. Last minute lender renegotiations. Lenders can reserve the right to renegotiate at any time in the short sale process, meaning if the market value changes or new laws pass, the lender can halt everything until the contract is rewritten and agreed upon again. Starting over entirely can be very frustrating for buyers, especially if they were in the final stages. If you have your eye on a short sale, do your research, and be prepared for an uphill battle complete with red tape and paperwork bogs. It may pay off for you in the end, but ask yourself throughout the process: is it really worth it? -By Katarina Combs |
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