Short Sales: What Are They and How Can I Buy One?

Everyone loves a great deal and the next two years may be one of the best times to take advantage of some of the lowest home prices we have seen in years. Property values have fallen drastically during this economic crisis - homes are now, essentially, selling at a discount of 30-60%. Houses that were once $1,000,000 in 2006 are now around $600,000. Most of these great deals happen to be short sales - which involve the sale of a home for less than what is owed resulting in the bank forgiving the outstanding debts. Why would the banks be willing to accept less than what is owed on a property?

In order to continue lending, banks need cash and due to all the non-performing loans, it's hard to come by. Because of the lack of funds, banks benefit more from a short sale where they obtain at least a small amount of working capital rather than going through the expensive process of foreclosure. That's where you come in. If you're a first time home buyer, are looking for a smart investment, or would like to move up to a new house, there are thousands of opportunities available to you. When you choose to buy a short sale, you're essentially saving a family from foreclosure, providing much needed capital to the lender, and getting a great deal from an otherwise unfortunate situation.

With all of that in mind, we do want to alert you to 3 important points to consider before buying a short sale:

1) Expect to Wait
Banks are so overwhelmed with the volume of defaulted mortgages that they simply cannot keep up. Time and trained employees are in short supply and disorganization is rampant. Some short sales have more than one lien and negotiations must happen with each of the lenders to reach a price point that both are willing to accept. It is because of this pricing process, multiple lien-holders, bank disorganization, and bureaucratic red tape that the short sale approval process can take anywhere from 3 to 8 months.

2) Expect to Pay
Since each property's loan situation is different, the costs associated with each property also vary. In most cases, the buyer of the short sale will not have to pay any extra closing costs outside of the normal buyer side costs associated with a sale of real estate. However, if there are multiple unsatisfied lien-holders on a property, HOA dues, or a bank counter offer at a price higher than your initial offer, you may have to pay some additional costs. However, you always have the opportunity to say no and walk away from the deal if it is out of your price range. This happens quite often and is why we always have at least one back-up offer on our short sales.

3) Expect to Save
Although short sales are never a sure thing, and require patience, a steadfast buyer can be rewarded with a home well below market value. A good short sale agent can negotiate a price approved by the bank that is beneficial to all parties involved, especially the buyer.

So though results will vary, you can usually expect to wait 3-8 months, cover some costs associated with closing, and potentially get a great deal on your new home.