When shopping for a homes in your area, you may notice the word “short sale” on some listings. Unlike a foreclosure owned by the bank, a short sale is in the process of going into foreclosure.
This is a process where the seller and bank will agree upon a price to avoid going into the foreclosure. This is a win-win situation for both parties because the seller is able to avoid negative credit ramifications, and the bank can avoid the time-consuming foreclosure process.
If you’re interested in buying a short sale, here are some things that you should know:
As mentioned above, the short sale isn’t owned by the bank. However, for a short sale to go through, the price has to be approved by the bank. What many buyers find out is that some sellers will put their home up for sale without approaching the bank first. When this happens, the buyer is taking a gamble because the bank may come back and not approve the price.
In many ways, a short sale will be very similar to a traditional home sale. The agent will draw up a purchase agreement and most of the time, the agent will state the house will be bought “as-is”. However, if problems do arise during an inspection, there will be stipulations that allow you to back out of the purchase.
The biggest drawback to buying a short sale is the waiting. On average, a short sale can take three to six months before an approval comes in. Since banks are notorious for taking their time, it’s recommended that a lender gives a deadline. That way, if the deadline isn’t met, the buyer is free to walk and look at other houses. Regardless of the situation, be ready to wait at least three months to hear a response back.
The Pros and Cons
Most experts claim that a short sale is a fantastic way to save thousands of dollars; however, others claim that the in the end, the house will be priced competitively, so no savings will be noticed.
Furthermore, after months of waiting, the bank may come back with a higher price that you weren’t expecting to pay. This is why it’s very important to submit a bid that is competitive to other home sales in the area.
One great advantage to buying a short sale is that the buyer will occupy the property during the buying process. Unlike a foreclosure that will sit vacant, buyers can sleep at night knowing their potential home isn’t going to be trashed or ransacked.
In the end, a short sale could be no different from a foreclosure or a traditional home sale. When considering a short sale, always make sure that you’re working with an experienced real estate agent. Since the process is different, one screw up in the paperwork and the process may have to start over again.
If your heart is set on a short sale, keep these things in mind:
- Make sure the home is in official default.
- The sale must be pre-approved by the bank.
- Have the purchase agreement allow you to house hunt while waiting.