Ten steps to Purchase a “Short Sale” Property in Today’s Real Estate Market!
A “Short Sale” is when a lender agrees to accept a mortgage payoff amount less than what is owed by the homeowner in order to facilitate the sale of a property. A typical short sale involves a series of important steps.
Buying a short sale property can be advantageous to all parties involved. The bank benefits from not having to go through with an expensive foreclosure process. The homeowner is completely freed from the burden of a property that worth less than owed. The buyer is able to purchase a great home at a great price. Also, buying a home as a short sale can be a hassle, so why should you consider buying a short sale home? You will get the property at a substantial discount.
Step 1- Determine how serious you are about purchasing a short sale real estate property. Are you looking for a great deal in today’s real estate market for you and your family? Or just a second house for a real estate investment?
In a short sale, you are dealing with several parties (the seller, their agent and the sellers’ lenders). A short sale can take longer compared with a typical residential real estate transaction. Don’t consider a short sale purchase unless you are patient or the lender already approved the short sale.
Step 2- Figure out your finances. Make sure you know how much money you have to invest in reals estate and whether you can comfortably own two real estate properties at the same time.
If you are selling another property, keep in mind that your property might sell first and you’ll likely need to budget for a few months’ worth of potential rent payments so you have somewhere to live in the interim. In the end, your patience will be rewarded with a great deal on a house.
Step 3- Know the area(s) or town where you would like to purchase a short sale real estate property. It’s also important to know the areas you wish to avoid. Many short sale properties are not in good condition and need time, effort and dollars invested to get them back to their original conditions.
Step 4- Use the internet to research Realtors in your area. A short sale is one real-estate transaction where you really need to get help from an experienced Realtor or an attorney knowledgeable on how to handle a short sale. Look for realtors who have received recognition, or designation (such as SFR) and worked in the area. It’s important to work with a short sale specialist. These deals take a lot of work and persistence. Also, ask your agent how many short sale they have successfully closed.
Step 5- Refine your search & Identify potential short sales. Most listings will indicate in the description whether the property is a short sale. Locate preforeclosures in your area. You can use an online database, search courthouse listings, legal ads or by using an experienced real estate agent.
Step 6- Secure Financing then Pre-view the property. Meet with a loan officer and get pre-approve to determine what price properties to preview and have the documentation to submit with your offer. If you are buying cash have proof of funds available. Gauge its condition and come up with a rough estimate of how much it’s going to take to repair or renovate. If it needs work, speak to your lender about a renovation or 203k loan.
Step 7- Timing is important. If you find a property that you are interested in, don’t wait too long to submit an offer. Short sale properties are typically sold well below “market value” so they don’t stick around on the market very long.
Step 8- Do your research before making the offer. Don’t just rely on the current list price to determine your initial offer. With the hopes of attracting many buyers the listing agent may have underpriced the property, but the bank likely won’t accept a lowball offer. Work with your agent to determine the homes market value by searching comparable sales in the area, with an emphasis on the other short sales and foreclosures. What is the property worth? What’s he profit potential? If you’re an investor or even a homeowner planning to live in the home a short time, you’ll want to profit from the deal.
Step 9- Contact the lender and be prepared to wait. Your agent will assemble the proposal speak with the loss mitigation department. The proposal generally consists of a package of materials including the application and authorization letter. This is a critical stage. Some buyers have waited 4 to 9 months to get a yes or a no on whether the lender will accept the short sale contract. Also, it’s important to get your loan approved so you will have the ability to move quickly. Once an agreement is worked out, it is common the lender will require closing in as few as 20 to 30 days.
Step 10- Closing the deal. It’s not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is and don’t be afraid to walk away if the lender won’t meet your figure. Once the seller’s lender approved the short sale and your file is clear by your lender. Next comes the closing and the property is yours.