My husband and I are just wrapping up our purchase of a short sale home, and our second short sale purchase at that. Here are the lessons we learned, including helpful tips for others considering the purchase of a short sale.
What is a short sale, in layman’s terms?
My husband is in real estate, so most likely would have a more technical description than what I can give. But for those not in the real estate market, i.e. don’t speak the lingo, a short sale is the sale of a property by a seller who owes more on their home than the house actually is worth in the current market. The seller has made an agreement with the bank to sell their house for less than they owe. The important thing to note is that the seller still technically owns the property. They have the first right of refusal for any offer. However, if they accept an offer, the bank must also agree to the offer, which usually results in the bank taking a loss.
Who benefits from a short sale, and how will that help me?
Everyone really benefits in a short sale. As the buyer, you will get a home that is worth slightly less than market value, although don’t expect to get a huge deal. For example, with both of our short sale purchases, we found that we purchased the home for $10,000-$15,000 under market value. However, that savings came with some conditions, as the house was purchased “as is” which means that any repairs needed on the homes were on our dime.
The seller benefits by avoiding foreclosure. While a short sale isn’t great on your credit, it’s a lot better than a foreclosure.
The bank avoids the heavy cost of completing the foreclosure process. Additionally, when a seller agrees to a short sale, they often will leave the property in a good condition, as they still have a financial interest in it.
When buying a foreclosure, it’s important to understand these benefits when making your offer. Most times, the seller won’t walk away with any money, so they will accept any reasonable offer you give them. We went in with a low offer on both of our short sales, and it ended up working out in the end.
How long does it really take?
Both of our short sales took 5-7 months from the date we put our offer in to the date we closed. From everything we’ve heard, this is standard and it’s important to keep this timeline in mind. For our second short sale purchase, we had to balance the timing of selling our current home with the time we thought we would be able to move into our new home. Short sales do not allow contingencies on the sale of your current home, which means that if we didn’t sell our current home by the time we closed on our new home, we would risk having two mortgages.
Fortunately for us, we listed our current home and had a buyer within a month. Furthermore, they were extremely flexible and allowed us to rent back from them until we closed on our new home. However, it’s important to have a back-up plan, such as a temporary rental, or a family member or friend who will let you crash with them until you close. In the end, short sales are a great deal, if you are willing to put the time and effort into making the property make sense for you.