Short sales are nothing new, but the current housing market has put these little gems at the top of every bargain hunters list. Thanks to dropping home prices in California and tighter lending guidelines, you can expect to find a handful of short sales within your area. But, buyer beware. Short sales are not for the faint of heart and can often become more troublesome than they are worth. If you are considering a home that is offered as a short sale, keep these helpful tips in mind.
Be Patient
In a short sale, lenders effectively sell the house below market value and take a loss on their loan. As a result, you can expect every decision to go through a series of supervisor approvals and various department oversights. Sellers are facing financial hardships and lenders are combing through these transactions with a fine tooth comb. There’s nothing certain about short sales - but be patient and your time could pay off.
Investigate
Short sales often result from home owners who either faced financial hardships or were just financially irresponsible. The last thing you want to do is to buy their problems along with the home. Check for unpaid taxes, liens, debts, and any cloud left on the title.
Invest in Success
With the recent popularity of short sales, there are a number of individuals trying to ride this wave as well. Make sure you find a Realtor who has proven success in the very different world of short-sale transactions. Don’t be afraid to simply ask them how many short sale transactions they have completed in the past year.
Find Value
Short sales are sales where lenders accept a purchase price below the amount due on the loan. However, this doesn’t automatically mean you will score a bargain. Actually, you might find many short sales available simply because home prices were so highly inflated in these past few years. Make sure you get a complete analysis of the market area as well as recent comparable sales. Sure, it may seem like a bargain since you’re paying less than the previous owner; but if market values don’t support the sale price, well then that’s no bargain at all.
Get Ready to Buy
If you are serious about finding a bargain, you’d better be serious about buying. In a short sale transaction, everyone is likely to be at the edge of their seats. Make sure you get properly financed and have the means of actually paying once you find this bargain deal. Again, time is of the essence and lenders will have no choice but to process the home into foreclosure if that time runs out.
There’s definitely a lot of action in the short sale market, and with the housing market where it stands - you can definitely expect to see more of these so called “bargains” popping up. Just remember though, short sales are not some super secret get rich quick real estate scheme. Like any transaction, do your research ahead of time before rushing into your new home.
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According to CNN Money short sales made up a third of recent home sales. California, Nevada, and Florida are top in terms of these transactions. So theirs obviously a market there.
Great post!
Just as a warning, some homeowners have been lowering their mortgage payments by arranging fraudulent “short sales” at prices less than what they owe. The buyer agrees to transfer ownership back to the seller, who winds up with a smaller mortgage on the same house and never has to move. The seller commits fraud by having a side arrangement with the buyer that he does not disclose to the lender. Lenders would reject a sale in which there was a special relationship between seller and buyer on the grounds that the selling price most likely was not the best one available. So while your shopping for a short sale beware of any side transactions or you may wind up doing time for mortgage fraud.
Do you think the California housing market will be weakened by short sales?
As a real estate agent in California I went seven years without a single short sale, now my office has done nine in the last few months. When your home is worth less than you owe, there’s a weakening in the market already. In my opinion, anything the lender can do to recoup the loan amount is a good thing for the market. But don’t quote me on that.
Any other insight?
Janice: Yeah, I saw that same article on CNN. Here is a similar story from the Sacramento Bee
http://www.sacbee.com/845/story/1186411.html
Craig: Great point. Fraud never pays off. Period
Fred: In a way, short sales do weaken the market as they end up driving comparable sale prices much lower. However, considering the situation, things would be much worse if banks sat around with huge inventories of foreclosed homes.
It is a very strange trend as you probably notice since more short sales inexplicably lead to even more short sales. But, this is the way of the market “correcting” itself and that is why we can expect to see more short sales as home values return back to “normal”.
Scott: Thanks for sharing your experience Scott. A lot of offices have certainly noticed the need for short sales, and buyers are very curious as to how they can tap into these discounted markets.
To me, curious buyers are great for this market. As I mentioned with Fred though, short sales do weaken the market in terms of home values. But as you probably notice, there is starting to be a pickup in terms of home activity- despite so many of these transactions being short sales. Lenders are being more responsive and understand that foreclosing can cause more harm than good for this market and their portfolios.
We can’t forget that for every short sale, these lenders are taking losses as they discount the loans. So while it helps the market in a way, we know that lenders are still hurting and that it’s going to take a while before things start to settle.
Good point!