Buyers looking for a bargain often ask their agents about short sales and foreclosures, hoping to get a property at bargain pricing. But when they don't educate themselves about these types of properties, some buyers find themselves in for more than they bargained for.
What is a short sale?
A short sale gets its name because the mortgage holder's lender has agreed to accept a loan payoff that is less than the balance remaining on the mortgage.
Unlike homeowners in foreclosure, those going through short sale are not necessarily behind in their mortgage payments. Sometimes, they are just "upside down," meaning they still owe more on their loan than their home is worth because of a decline in home values. The discount in pricing that the lender allows is typically an amount that brings it back in line with what the market will bear.
Short sale versus traditional sale
The starkest difference between a short sale and a traditional home sale is that with a short sale, the lender has final say on the deal. Because a third party is involved, buyers often wait several months before hearing whether their offer has been accepted.
Compared to traditional sales, which often close in 45 days, short sales can take anywhere from two to four months to close. This makes it difficult to time the sale of your existing home with your new one.
Some words of caution
You can expect a short sale property to be sold "as is," meaning neither the homeowner nor the lender is going to make any requested repairs. You can still have a home inspection and write into your offer that the sale is contingent upon satisfactory home inspection results.
The key takeaway about short sale properties is that not all will sell at or even near the listed price. That's because the sale requires lender approval. Another thing to keep in mind is that you must rely on the seller's agent to package your offer and present it to the lender. You may also find that closing costs are higher than with a traditional sale.