When you're searching for a home on a budget, a short sale can look like a dream come true. In a short sale, the seller is selling the home for less than what's owed on their mortgage, usually because they are looking at a foreclosure if they don't. The seller doesn't make any money on the deal, and the bank has to accept less money than they were originally owed by the seller, so no one is profiting on the deal except for you, because you're getting a home for far less than what it's really worth. Sound too good to be true? That's because a short sale is not without its drawbacks. Take a look at a few things that you need to be aware of before you agree to buy a short sale home.
It Can Be Tough to Tell Exactly What You're Getting
In many states, banks are not required to provide the disclosure statements that most sellers are required to pay. That means that if the roof has been leaking for five years, the bank isn't going to let you know about it. The seller will still be required to fill out a disclosure form, but remember that the seller is motivated to sell, avoid the hit to their credit that would come from a foreclosure, and start repairing their credit. All of that may result in a seller that is less than forthcoming about the problems that the house may have.
The answer lies in getting a thorough inspection before you buy. An inspection should be a part of every home buying process, but it's especially important for a short sale. Don't simply rely on reading an inspector's report for this – go along on the day of the inspection and ask lots of questions. Ask the inspector to give you a ballpark estimate of what any repairs will cost, or research the needed repairs yourself before you agree to buy. Underestimating the cost of repairs and upgrades can leave you holding a rather large bill when it's too late to negotiate on the price of the house.
Short Sales Don't Happen Quickly
Keep in mind that the "short" in short sale refers to money, not time. If you need to close quickly, you may be better off looking for a home that's not in short sale. Not only do short sales not happen any faster than a regular sale, they may actually take a lot longer.
There are a few reasons why short sales are slow. For one thing, there is a lot of back and forth between the seller and the bank while they try to negotiate a short sale agreement. Some short sale homes have two mortgages instead of one, which can make things take even longer. The bank or banks will have to approve the purchase agreement that you make with the seller before you can proceed with the sale. Some lenders may work with you to start getting your own mortgage approved before the bank's approval of the purchase agreement goes through, but in many cases you'll have to wait.
Some Short Sales Aren't Really Short Sales
A seller has to meet certain criteria to be allowed to short sell their home, and not all sellers qualify. Usually, the seller has to be able to prove a hardship to the bank. However, some real estate agents have been known to push desperate sellers into listing their homes as short sales without being pre-qualified by their lending agency first. The seller may believe that they'll be approved, only to later have the bank turn down their application to short sell the home.
That means that it's possible to tie up your time and money tied up in what you think is a short sale – possibly for months – only to find out that the sellers never qualified for the short sale in the first place. If you still want to buy the home, you'll have to pay a lot more – or you'll have to start your home search all over again.
An experienced real estate agent, through a place like Realty Executives, who knows their way around a short sale can help you avoid a lot of the possible problems that come up with buying a short sale home. Don't go into a short sale without a real estate agent on your side.