Pros & Cons Of Short Sales

Short sales are different than bank-owned/foreclosure/repo homes, and also different than regular resales. They are a strange mix of the two. With a short sale, the owner still technically owns their home, but owes more on their mortgage than what the home is worth. Therefore, in order to sell, they need to get special permission from their bank. This requires the seller to do extra paperwork to prove hardship and why they qualify for a short sale.

As a buyer, here are some of the pros and cons if you’d like to purchase a short sale home.

PROS

Price – The seller is not making any profit from selling the home. The house should be priced at or below fair market value – which is determined by what has recently sold in the neighborhood &/or an appraisal.
Motivated Seller – A short sale/fire sale is trying to sell fast, since the owner cannot afford the property anymore. Maybe they bought during the boom, must move due to job transfer, and the property is worth less than what they bought it for. Maybe their loan adjusted, maybe they lost their job, maybe they are missing payments – for whatever reason, the seller NEEDS to sell.

CONS

No Repairs – The property is usually sold AS-IS, meaning the seller will not be making any repairs to the property. For example, if your home inspector finds a broken window, you won’t be able to ask the seller to fix that at their expense.

Response time – when you submit an offer on a property, you’ll also put a deadline asking for a response. The seller will have until that day/time to accept, reject or send a counter-offer. Because true acceptance requires bank approval – this can take anywhere from 2 week to 2 months – just to get a reaction to your offer! You’ve got to have HUGE patience. Short Sales usually take at least 3 months to get approved, and then another month to officially close.

Concessions – Remember, the seller has no money – hence the need to short sell. So if you plan on asking for the seller to pay for your closing costs, the bank will most likely say no. A bank wants a “clean, clear” offer – not asking for a bunch of extras.

Condition – Short Sales can be occupied by the owners that are “upsidedown” in their mortgage, or they could be already vacant. Either way, the owners most likely are not making improvements to the house or maintaining it. This means A/C filters aren’t being changed, water isn’t running through pipes and bugs are probably taking up residence.

Fuzzy Price – The price is always subject to bank approval. There is no guarantee that the price you see advertised is the price that a bank will be accepting of. From a bank’s perspective, a short sale will cost them less than a foreclosure – unless the agent has priced the house so below fair market value that there is no way the bank would agree to that price – the bank may be losing just the same or more if the bank were to foreclose. A bank-owned house however, the bank has approved that price – so if you offer full price – you’ll most likely get it.

Becky Wyatt
Arizona Home Talk

No related posts.