House Hunting - Short Sales

I have been so busy lately, that I haven't had enough time to post.  That is great for business, but not great for blogging!

Several of my clients are looking at short sales and foreclosures.  In the market right now, there are a lot of them out there.  Many buyers don't know the difference between the two, and I thought it would be worth it to take the time to explain the difference.  Today let's focus on Short Sales. 

Short Sales

In a short sale, a house is typically in a preforeclosure state.  The owners have gotten behind on their mortgage, or owe more than what their house is currently worth.  The decide to work with a real estate agent to try to sell the house before it goes into foreclosure. 

These homes can be in disrepair.  Sometimes they are vacant, sometimes they are still occupied.  What the house is listed for, is going to typically be the amount owed to the bank, or a fair market value that is less than what is owed to the bank, hence a "short" sale. 

The owners of the home are still the ones to make the decisions.  They can accept or reject offers, but ultimately it is the bank that must decide if the price is going to be enough to satisfy the debt.  Because you are working with not only a seller but bank officials at each step, a short sale can be slow.  I have heard of them closing in relatively quick time frames when a home owner is already working with the bank towards a short sale, and I have heard of people waiting 15 months and still not having a short sale closed. 

If you have a timeframe in mind where you need to move, or you have a home of your own to sell before you can buy, you might want to reconsider these kinds of sales.  Also, in a short sale, the bank is the one paying commissions and fees, so typically these homes are sold in "as is" condition.  Keep in mind that a seller who can't pay their mortgage isn't going to have the cash to put a new roof on the house.

If you are interested in short sales, make sure you are working with an agent, and make sure you have patience.  A short sale is different than a regular arms length transaction.  The negotiating you are doing might be with the bank, or you might put in an offer that gets flat out rejected.  Depending on the bank who holds the mortgage, there may be different rules for offers, and different time frames for what is a normal time to respond.

Short sales can be a good deal for the buyer.  The bank often is willing to work with a reasonable offer and to forgive the debt because if they don't sell the property and it goes into foreclosure, there is often more money they would lose in that process.  Also, once a property goes into foreclosure and is sold at a Sheriff's sale, the bank frequently ends up buying the property back.  It then can sit from anywhere from 6 months to 2 years before the bank will relist the property as a foreclosure, often for less than they could have gotten from the short sale.

Not all owners will choose to go the short sale route.  Beware the listings on Zillow or other public websites of homes that are Pre-Foreclosures - they are often not for sale yet!