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Someone purchasing a short sale home

10 Things You Should Know Before Buying a Short Sale Home

Buying a short sale house can yield a great deal. As a buyer, you’re purchasing a house for its true market value than an inflated cost. The house can be in a great neighborhood. Unfortunately, short sales have many pitfalls for buyers. Here are 10 things you should know before buying a short sale home.

  1. A short sale can take a while.
    Don’t be fooled by the name. Short sales do not take a short amount of time. On average, short sales take around 116 days or so. The seller must approve and the lender must approve. This can draw out the amount of time it takes to make a sale.
  2. You may need cash or a huge down payment.
    Lenders love cash offers. Even if you can’t pay cash, you need to show that you’re well qualified. You should be preapproved, have a large down payment, and have the ability to close at any time. If you can do these three things, your offer will be on the top of their list compared to those who seem less able to pay. 
  3. The homes are sold “as-is.”
    You may not end up with a bargain. If someone has a hard time making mortgage payments, they likely allowed their house to fall into disrepair. Pulled up carpet, junk in the yard, and several other issues can add up. Know that you have no protection against major issues like a busted roof. All of the costs of repairs land on you.
  4. Hire an inspector.
    Because the homes are sold “as-is,” you need to hire an inspector. These inspectors will help you avoid any huge issues. They will assess the house and may even be able to tell you the cost of repairs. While the inspector may cost a pretty penny, they’re worth it. It may mean the difference between a great deal and a lemon.
  5. You may be rejected.
    Even if the seller approves, the lender may reject. After getting an offer, a seller must also sign a promissory note to repay the deficient amount. All parties must accept the terms and the price offered. This is what may tack on extra time to your short sale. Be aware that at any process, you may be rejected for various reasons.
  6. Don’t sweat the small stuff.
    You’re buying a short sale home. There will be issues, but if it’s small enough, don’t worry too much. If you don’t like the color of a room, you can repaint it. Consider the price of repairing small things, but don’t let them be a deciding factor unless the cost is ridiculous. A home with a little tender loving care can double in price.
  7. Consider hiring a real estate agent. 
    Unless you are extremely experienced, consider hiring a real estate agent. They should be experienced in short sales. Many banks have companies that manage their short sales to get them the best deal and you need someone who knows the local area well enough to give you a better deal. They will know common discounts in the area and what you need to do to have your bid accepted.
  8. Offer the right price. 
    Lowball offers aren’t even glanced at. This is because the seller will have to pay what’s left over. A seller isn’t going to accept an offer that is a third less than what the listing price is. It can be difficult to determine what the “right” price is, but this is where the real estate agent comes in. The listing price may be an estimate of what the seller and listing agent think the bank will accept. The bank may be hundreds of miles away, so don’t expect them to set the right price.
  9. Lenders may change conditions. 
    Some lenders may reserve the right to change the terms of the short sale at the last minute. This means renegotiation. If the market changes, new laws are passed, or if new information appears, a lender will attempt to change the contract. Plus, they have lawyers at their disposal. You should be aware of this fact. 
  10. Know when to walk away. 
    Once you know all of these things, it’s easy to see where a short sale can go wrong. The buyer can find themselves in a pitfall. You should know when to walk away. If the sale is taking too long, consider if it’s worth it. If the lender keeps changing the contract, you’ll probably not make a deal. A real estate agent will be a valuable tool in knowing when to walk away. 
Last Updated: January 18, 2016