5 Obstacles to Prepare for When Buying a Short Sale
A short sale can be an excellent way to purchase a home at a lower price than the current market value. The process of purchasing a short sale home is different than that of a typical traditional home sale. Here are some hurdles that are good to be prepared for when it comes to short sale properties.
Preparing an Offer that is Fair and Competitive
Short sales can save a borrower money on the purchase price as compared to a traditional home sale, especially in a competitive buyers’ market. When it comes to selling a short sale home the lending bank gets the final approval on the offer. A bank is not looking to give a home away to the first buyer, they are hoping to recover as much cost as they can from the less than ideal situation.
Advice from the Freddie Mac website suggests that buyers make an offer relatively close to the current market value of the home. Other experts advise on starting with an offer of 20% less than market value to begin negotiations. The best way to know you are making a strong offer is to ask your realtor for advice. They will have a good idea on what competition you may be facing and what the bank may be looking for.
To help make your offer look stronger to the lending bank:
Have an experienced agent quickly submit a professional offer
Include your pre-approval letter from your lender
Don’t low ball your purchase price offer
The better your offer is prepared the better the chance of getting bank approval
Lengthy Approval Process
Since both the homeowner and the lender need to approve the offer on the home it can take much longer than just needing the homeowner to accept your offer as with a traditional home sale. Sometimes banks can take as much as weeks or even months to approve an offer. In some cases it can take longer if the bank makes a counter offer. To help the process go more quickly and smoothly be prepared to answer any questions the bank might have or provide more information when requested, as soon as it is requested and get the proper information back as soon as possible. There is no specific timeframe on closing for short sales.
You Purchase the Property “as is”
It is not uncommon for short sales to need a little care, repair, or updating. Any renovations, repairs, and style updating are going to be the sole responsibility of the buyer. The current owner and the lending bank will not make any repairs. All short sale homes are sold in “as is” condition.
It is still a wise idea to get an inspection and your bank more than likely will require it unless you are financing a large sum of the purchase with cash. If the home does not pass the inspection standard for your lender’s approval you could be stuck finding a new lender or needing to look for a new home.
Some short sales come up with unknown or unreported liens on the property. This can make the sale of the home much more complicated as every company with lien rights gets to voice their opinion and gets to choose if they give permission for the home to be sold. It may be worth your while to hire a title officer to look up if there are any liens on the property before making an offer. This can also mean taking a risk of taking more time to make an offer and losing out to someone who beats you to the punch.
Possibility of Foreclosure
Short sales can take a long time. During the time of waiting for bank approval, the home owner could slip into deeper financial issues and the home could go to foreclosure. Foreclosure does not just happen when the bank is legally permitted to take full ownership of the home, it can also occur if the homeowner forfeits the home over to the lender. This can take place while you are awaiting approval.
The next steps in the process are sending the home to auction and if it does not sell there it will become on REO property the bank tries to sell on their own through a special department. If you love the home enough to keep trying to purchase it you will have to start over again in the purchase process through these avenues.
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