Purchasing a Short-Sale Property

03/18/2013 - 2:55pm

 The Risks and Rewards 

The home buying community is buzzing with the notion of buying short-sale properties.   The reason is simple – consumers love a bargain! 

And while the thought of buying real estate at a discount is attractive to all of us, it’s important that you have a clear understanding of the risks and rewards that surround a short-sale purchase. 

What is a Short-Sale? 

A short-sale is when a home is sold for less than the balance due on the mortgage. That is, the selling price will “fall short” of satisfying the outstanding debt against the home.

Why would a Lender allow a Homeowner to sell their property for less than the debt owed?

The short answer, (no pun intended) is that the lender is looking to minimize their anticipated loss. 

When a homeowner decides to sell their property for less than they owe, it’s often because they are unable to keep up with the monthly mortgage expense and property maintenance due to a personal or financial hardship.  Foreclosure, for many, is imminent. 

To avoid the financial stress, as well as the negative impact a foreclosure has on a credit rating, it benefits the homeowner to sell their home as a short sale if allowed by the lien holder(s).

On the other side, repossessing the home in foreclosure can be a very expensive and time-consuming process for the lender.  By allowing the homeowner to sell the property outside of foreclosure, the lender views the short-sale as a way to minimize their loss.

So who is actually selling the home? 

The homeowner.  In fact, your initial dealings will feel just like any other home purchase with a typical negotiation of the selling price between you and the homeowner.  However, there is one major twist.  The agreed upon sales price between you and the homeowner is somewhat meaningless until the lien holder (the lender) agrees to let the sale go through.  Remember, it’s the lender (not the homeowner) that is the one who actually takes the loss when the short-sale is completed. 

Time to Wait, Time to Rush

If you make an offer on a short sale property, be prepared to wait. How long depends on many factors, but history shows us that banks are in no rush to approve a loss.   Their delay, in part, depends on volume, limited resources, data on a particular property and repayment history of the owner, all of which produces a waiting game of several weeks to months before you as the buyer know if your offer is accepted. 

However, as soon as the lien holder approves your offer be prepared to close quickly.   Most lien holders will insist that a closing take place within 30 days of the short-sale approval.

Weighing the Risks and Rewards

Experts disagree on whether short-sales are a good deal for home buyers.  Some believe short-sale properties are priced below market value, while others insist that lenders will try to sell as close to market value as possible in order to minimize their loss.  In our experience, we see both sides playing out to be true. 

For this reason, we suggest that you stay focused on locating a home that’s right for you regardless if the property is being sold as a short-sale or not.  In other words, don’t lose sight of your home buying goal by chasing bargains that may turn out to be no bargain at all.

Finding Home Buying Success through Short-Sales

In today’s market, chances are the home of your dreams may turn out to be a short-sale.  Here are some highlights to get you started on the right path; 

·         Obtain a Full Loan Approval - Have a full loan approval prior to the acceptance of your offer by the lien holder.  This differs greatly from a pre-approval.  The full loan approval means your lender is ready to provide the financing you need to purchase and close quickly in anticipation of the short-sale lien holder’s approval of your offer.  The short-sale lender understands the value of a fully approved buyer and may take this into consideration when deciding on the strength of your offer.

·         Put Experience on Your Side – Because of the complexities and the unique process surrounding a short-sale purchase, place only experienced short-sale professionals on your home buying team.  That includes your attorney,  lender, and realtor as you will often rely on their experience to guide you through the process and to help facilitate lien holder approval.

·         Stay focused on your goal.  If your goal is homeownership, be careful not to let other opportunities pass you by while you’re waiting to hear if your short-sale offer is accepted.  An attorney experienced in helping buyers with short-sale purchases can ensure your options remain open.

To learn more about the home buying process and how to prepare yourself for a possible short-sale offer, register today to attend this educational event;

Homeownership through Real Estate Short-Sales  

April 20, 2013 – Springfield, NJ

9:30am – 12:30pm

Visit www.mywayhome.com for details