5 smart tips for buying a short sale home and 3 mistakes to avoid

Buying A Short Sale

Short sales can be a great opportunity for aspiring homebuyers who want to purchase a property for a reasonable price. They’re often listed below market value by motivated sellers. Buyers who happen to be in the right place at the right time can benefit from the sellers’ desperation.

Having said that, purchasing a short sale isn’t without challenges. A number of obstacles, many of them avoidable, can sabotage the deal. It’s important to understand the process and manage your expectations. Here are 5 tips for buying a short sale property with minimal headaches.

#1 – Check The Closing Rate Of The Seller’s Agent

Short sales often fall through, even after a buyer has submitted an offer that is accepted by the seller. The reason is usually due to the seller’s lender not approving the sale. For that reason, it pays to work with a listing agent who has completed short sales in the past. An agent who has never completed these types of transactions either lacks experience or skill in working effectively with lenders.

#2 – Make Sure The Proper Documentation Is In Order

The seller is expected to submit a number of documents before a lender will approve a short sale. Such documents include an affidavit of hardship, pay stubs from the last month, bank statements from the last few months, and tax returns from the last few years. In addition, the seller’s agent needs to submit a letter of authorization and listing agreement.

Before submitting an offer, make sure the seller and listing agent have completed and turned in the necessary paperwork.

#3 – Be Prepared To Pay Market Price

A common misconception among individuals who want to buy short sale properties is that they’ll be able to do so for a dramatic discount to market value. That rarely happens.

Lenders to whom sellers owe money on their homes usually decline offers that are significantly below recent comps. They prefer to foreclose. In cases where a lender is willing to approve a low offer, the seller usually receives several from potential buyers. The competition results in a final price that is close to the property’s market value.

#4 – Expect The Sale To Take A Few Months To Close

This is arguably one of the most frustrating aspects of buying a short sale home. Many buyers expect a typical 30-day escrow period. Instead, they discover the process can require months. Worse, there’s no guarantee it will be completed.

Manage your expectations. When you submit an offer on a short sale property, realize that it may be several months before you’re able to move in.

#5 – Submit An Attractive Offer

We noted earlier that short sale homes typically sell for prices that are near their market values. You can save time and avoid a bidding war by submitting an attractive offer upfront. Doing so will trump low-ball offers from other buyers. It may also encourage the lender to quickly approve the sale.

Assuming your realtor has experience with short sales, he or she will be able to suggest a reasonable price.

Mistake #1: Failing To Manage Your Expectations

Given the challenges with closing short sales, it unsurprising that would-be buyers often become frustrated with the experience. Realize in advance that some aspects of the process are beyond your control. After all, you won’t have an opportunity to work with the seller’s lender. Avoid some of the frustration by managing your expectations.

Mistake #2: Not Choosing A Realtor With Short Sale Experience

Many real estate agents assume short sales carry the potential for quick and easy commissions. They figure buyers like good deals and are inclined to make offers. The reality, as we explained above, is that lenders rarely approve low offers. Hence, many agents fail to close deals.

It’s important to work with a realtor who has a proven record of completing short sales on the buy side. He or she can offer critical advice that streamlines an otherwise aggravating experience.

Mistake #3: Neglecting To Check For Multiple Loans

Owners of short sale homes are often in dire financial straits. That being the case, it’s common for their properties to carry more than one loan. All lenders to whom a seller owes money must approve a short sale before the transaction can be completed. Even if the primary lender approves an offer, the secondary lender may reject it.

Before you submit an offer, check whether the property you hope to buy is carrying more than one loan. If it is, be prepared to jump over another hurdle.

It is possible to obtain a good deal purchasing a short sale. Set the right expectations and let your realtor guide you through the process.