It is hard to believe but we are a decade removed from the “mortgage collapse.” Anyone who looked at buying a house during that time knew exactly what a short sale was. Short sales dominated the market and offered deep discounts for many buyers. During the height of the collapse short sales constituted almost half of all real estate transactions. While short sales are no longer nearly as popular as they were, there are still a few diamonds in the rough. However, they are not for every buyer. There are plenty of hurdles to jump over and hoops to go through for approval. But, in the right situation it can lead to a great deal on a property you really want. Here are a few pros and cons of buying a short sale property.
Lender Approval Required.Not every property and every homeowner are eligible for a short sale. There is a required list of guidelines that must be met to gain approval. Even if the homeowner is approved the value must still be signed off on. As a buyer, you need to know exactly what you are walking into. There is plenty of red tape during the process that you will encounter. It is not uncommon to find something a month or so in that can derail the transaction. Everything needs to be signed off on by the lender which can not only be an inconvenience but time consuming as well.
Longer Process. Even though buying a short sale has gotten easier it is still far from quick. As we mentioned, there are layers and procedures that must be followed. Starting with the approval and moving to lien negotiation, buying a short sale can take months. To make matters worse you can do all this work and still not get your offer accepted.
No Negotiation. Negotiating a short sale is done through the lender as opposed to a traditional homeowner. This means there is almost no wiggle room at all. What you see is what you get for better or for worse. Any changes to the property or concessions on the contract need to be signed off on by multiple people. Getting the lender to take a price reduction or to remove something from the property is difficult, if not impossible.
Discounted Price.The primary reason you would entertain a short sale is because of the potential discount. Long gone are the 25-30% price reductions but there are still some good bargains to be had. Lenders are not in the business of owning real estate regardless of the market. They would much rather list the property at a slight discount and sell than to keep paying the taxes, insurance and other holding costs. As a buyer, you may be able to get a property you want at a price that works for you.
Seller Cooperation.Generally speaking a short sale is preferred over a foreclosure or bankruptcy for the seller. The impact isn’t as great on their credit and they can buy a new home much quicker. This leads to more cooperation on their part. They are more agreeable to showing you the property if you need to measure a room or get a second look at something. They are much more likely to expedite the process with the lender and get the deal closed ASAP.
Reduced Competition.Short sales have gotten a bad rap over the years. Many buyers were stuck waiting for months for an approval that never came. Because of this many buyers, and real estate agents, still avoid them at all cost. This has led to a slight reduction in competition. You won’t be the only one bidding on a property but there won’t be dozens of buyers banging down the door.
If you are interested in a short sale you need to know exactly what you are getting into. The process will be longer and there will be bumps along the way, but it may just be worth it for the right property.