You've done it. You've found the home of your dreams listed at a great price, and because it has been on the market for forever, you can basically offer anything you want and get the deal of the century. You're excited, you've called your mom and she's excited, and nothing in the world could go wrong because it's a short sale and nothing goes wrong with short sales, right?
Whoever was put in charge of marketing short sales has done an excellent job. They make sellers drool with the promise of a great home for a convenient price, and give them a sad story about how they'll be helping out the buyers. While helping out the buyers' side might be true, there is rarely a great deal to be made with the words “short sale” tacked on the front of it.
If you are insistent upon going through with a short sale and nothing can convince you otherwise, there are a few things you need to know as you go into it.
What You Need To Know Before Buying a Short Sale
Let's take a minute to pause and notice that the header says before buying a short sale. You should not make an offer on a short sale until you know these things. Now let's continue.
Is my real estate agent experienced in short sales?
While it's always important to have an experienced real estate agent when buying a house, a short sale is definitely not the time to give your nephew his first real estate deal. Short sales involve paperwork and contingencies and can get pretty sticky if you don't know what you're doing. Using an agent who has worked with short sales before will be the key you need to get through the sale safely and sanely.
Does the sale include repairs?
If a house is going short sale, it's because there is no equity in the property and the owner wants out. No equity usually means there will likely be repairs. When people are already paying more on their mortgage than their house is worth, they tend to neglect updates like a new roof or a nicer kitchen. Know as you go into the sale that there will be no roping in fixes big or small into the negotiation terms. Also, note that the price the house is listed for is what the broker perceives the house is worth with those repairs needed. Be prepared to at least offer the asking price if you want to be taken seriously.
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How do I negotiate a short sale?
You may want to bring your negotiating hat (and a Tolkien novel) when purchasing a short sale. Many think they can get a killer deal on a short sale simply because the buyer can't afford the house anymore, but that's not the case for the lender. The lender will get as much as they can from the sale, and they'll take their own sweet time doing it. A short sale can take months and even years to complete if you're willing to stick it out that long. That's because the listing price is actually determined by the real estate broker, not the lender.
The broker completes a comparative marketing analysis to come up with the value of the house. The lender will use the CMA as a point of reference. The lender may not completely agree with the broker on the price, though. When this happens, the seller may see their offer price countered by tens of thousands more than their original offer. If you decide to then counter their counteroffer, you could be waiting a rather long time for a “no.”
What if I change my mind during the sale?
You may be sure about your plan to purchase the short sale now, but leave yourself an escape route in the future. While you wait on the lender to get back to you with a counteroffer, don't miss out on homes that will give you a shorter timeline and have more room to negotiate. This is another instance where that experienced real estate agent comes in handy. They'll know what contingencies you'll need so you can get out of a particularly long home selling process and into the new home of your dreams, if it comes to that.
Do I need special financing for a short sale?
While you don't need special financing for short sale, per se, there are stipulations and conditions to the lending you use that could disqualify you from purchasing a short sale. If you need an example, look no further than the FHA loan. This is a great loan for first time home buyers and provides fantastic options for those with low credit. In order to get all these great things, however, the house you can buy with an FHA loan is dependent upon the house being in a certain condition. FHA Loans require certain repairs be completed before the lender approves the sale. Most home buyers don't want to make repairs on a home they don't technically own yet, so they can't buy that home.
If you are set on a short sale home, know at the very least what you are getting into. There are some buyers that end up with a great house at the end of a long wait, and we hope you are some of them. Best of luck to you, we wish you a short closing!
Have a house in mind that's going short sale? You need the best of the best in your area to help out with that transaction. But the best of the best can also come with a commission rebate. For a great real estate agent at a price you can get behind, you need Clever. Call us today at 1-833-2-CLEVER or fill out our online form to get started.