Are You a Buyer Looking to Purchase a Short Sale?
It
seems that there is a significant amount of confusion when it comes to
purchasing a short sale. There are many misconceptions when it comes to
this type of transaction, so below I have provided some information to
potential buyers of short sales. If you are looking to purchase a short
sale, understand that it is not the same as a normal sale and the
approach is very different. There could be several parties involved and
issues that are unknown to the buyer and buyer’s agent that can affect
the transaction. If you are looking to purchase a short sale here is
some helpful information.
1. On average, to get a short sale approval, it can take 60-90 days.
There could be mortgage insurance and an end investor on the loan as
well as the servicer, which means it has to go through three different
processes. Bank of America could be the servicer on the loan but they do
not actually own the loan, so, the short sale has to pass their
guidelines, then go to the mortgage insurer if there is one, then to the
end investor like Fannie Mae and Freddie Mac. If you are a buyer and
can’t wait at least 60-90 days for an approval and then another 30 days
to go to closing, then you need to look at other houses. The worst thing
you can do is tie up a house that is in a short sale with no intention
of being patient while waiting for a short sale approval. Approvals can
come sooner than 60 days, but industry standard is at least 60 days to
get an approval or denial.
2. There is a general assumption that you can purchase a short sale for 40-50% under its listed price. In
a short sale the bank comes out and does a valuation of the property
and will expect a slight discount, but will not accept a huge amount
under the market value.
Hopefully, if the agent who is handling the sale is experienced, they
will have already gotten an approved list price from the bank by the
time you are interested in making an offer.
The bank will usually be willing to negotiate on that price, but will not, in almost every case, take 40-50% off of that price.
To
that point, you may be able to get a reasonable deal on a short sale,
though it will not be, in most cases, as much of a deal as you may be
able to get on an REO (foreclosed property). Also to that point, most
short sales will be in better condition than an REO. When you look at
the potential repairs a comparable REO needs and the time and expense it
can take to do those improvements vs. a short sale being sold at a
slight market discount with improvements already made, the investment
could even out. There are REO properties that can be picked up for a
huge discount, but require massive repairs that a comparable short sale
may not require.
3. Short sales are a very difficult process and it takes a qualified person to handle this type of transaction.
With this type of transaction it takes a
very experienced agent on the listing side as well as the buying side.
Make sure before you move forward on the transaction that the listing
agent has ample experience dealing with these types of transactions, or
you could be tied up in a contract for months that never goes to
settlement. There are several different types of short sale processes
and each bank’s process is somewhat different; it takes a professional
who has had experience with all of these different types of short sales
to help facilitate a successful transaction.
4. In most short sale transactions the properties are sold “as-is” and no repairs will be made.
Although there are some exceptions to this rule, speaking in general,
short sales are sold “as-is” and no repairs will be made even if they
are found during a home inspection. In most short sale transactions the
bank will require both the buyer and the seller to sign an addendum that
states the property is being sold “As-is” and no repairs will be made.
These are just a few short pointers for buyers who are looking to
purchase a short sale as they are a reality in every market, and if you
have the patience you may be able to get the home you are looking for at
a discount!
The
real estate market continues to heat up as we head into the summer.
Will this increase in demand equate to an increase in home prices? That
depends. Remember, the price of any item is determined by the supply of
and demand for that item at any point in time. Let’s look at the facts
as reported by the National Association of Realtors (NAR) in this month’s Existing Home Sales Report:
We
believe the housing market is recovering. We believe that sales will be
robust through the rest of the year. However, we also believe that the
increase in demand will not impact prices in a big way as we think there
will also be an increase in the supply of homes coming to the market.
This increase in supply will offset the increase in demand. The increase
in supply will be fueled by two categories of inventory:
Every day there seems to
be more positive news about the real estate recovery. We attempt to give you
two things in this blog:
I just came across a wonderful story...
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