Finding the Right Short Sale Property
If you’ve been considering an investment in real estate or buying a home, you may have found yourself looking at short sale listings. But what exactly is a short sale? A short sale occurs when a lender allows a homeowner to sell their property for less than they owed on the existing mortgage. This process allows the lender and the homeowner to avoid the lengthy and costly foreclosure process. Unlike regular home sales, in a short sale, the lender is actually the one approving the sale.
Why should you consider buying a short sale home?
Buying a short sale home is a great option because property owners and mortgage lenders are eager to sell quickly, allowing you to buy the property below market price.
Depending on your level of familiarity with short sales, you might want to hire a short-sale agent who knows the ins and outs of the occasionally complicated short sales market. They will be able to check out homes on the Multiple Listing Service (MLS) database and identify homes where the current owner might not have equity in their home. Find an agent who is well-versed in the local housing market, has experience in handling short sales, and is a master negotiator. The more experienced your agent is with short sales, the better the chance is that you will save money in the long run.
What to look for?
Sometimes short sales aren’t listed as such, but they will use certain terms to indicate that it’s a short sale. Some key phrases to look for are “notice of default,” “subject to bank approval,” “preapproved by bank,” “give the bank time to respond,” “headed for auction,” and “third-party review required.”
Another pro tip: you can track potential short sales by visiting your local courthouse and using public records to seek out pre-foreclosures.
Despite its name, a short sale isn’t always a quick transaction. In a short sale, the homeowner is trying to get their mortgage lender to accept less than they are owed for the property, and the lender must approve the sale. Lenders are of course reluctant to take a loss on their property, so they may drag their feet. This is why it’s important to have an agent who’s well-versed in short sales. If you’re interested in buying multiple properties, the time investment in a short sale could prohibit you from investing in other properties.
Crunching the Numbers
You want to look for properties with a wide gap between fair market value and the outstanding mortgage balance. Your offer should be close to the home’s fair market value – the more you can put down, the better. Although the previous homeowner is involved in the process, the decision to sell ultimately comes down to the lender.
Another important consideration on a short sale is that the property will be sold in its current state. A benefit of short sales (versus foreclosures) is that you will have the opportunity to inspect the property before purchase. Take advantage and tour the property to identify areas of the home that might require repair. It would definitely be to your advantage to consider paying for a professional appraisal to determine the property’s worth. Additionally, you will want to conduct a proper title search to ensure protection against undisclosed liens which will cover the legal costs associated with protecting your property. Being thorough will allow you to accurately determine if this is an investment worth your time.
Short sales reward buyers who are patient and persistent. Keep doing your research and don’t get discouraged. The more potential homes on your radar, the more likely you’ll be to snap up that short sale property of your dreams.