I did a quick Twitter poll (you can follow me on twitter @tadahmom) and found out that most people don’t understand what a short sale is. The majority of people think it means the house can sell quickly – hence the word “short.” Do not let this word confuse you into thinking it will be a fast sale. It likely will not be fast.
A short sale means that the seller is accepting offers for their house that will likely be less than what the seller owes on the property. The seller will approach the lien holder with the offer and ask them to accept less for the house than what is owed. It sounds simple, but it isn’t. The process can take anywhere from 30 days to six months, and the bank still might not approve the short sale. If you’re going to be purchasing a short sale property, you have to be willing to wait and you must have a pro-active agent. Patience could be a great reward if you’re able to purchase a house for less than fair market value.
Often when you’re looking through the MLS you will find a house with a price that is “amazingly low.” It’s probably not that the seller is willing to give away his house, but that he is wanting to get offers for a short sale property. The bank won’t even begin the process in most cases, until an offer has been presented.
There are a few positive reasons to buy a short sale:
a) The house usually sells a bit below fair market value
b) You’re helping to keep the seller from foreclosure (I don’t really think this should be a motive)
Now for some of the negatives:
a) There are no guarantees you will be able to buy the house
1) The bank may not accept your offer even after working on it for several months
2) Offers are often accepted continuously – you won’t know if your offer is the one that will be ultimately accepted even if you’ve been told it is. (this part has been getting better recently)
b) Rarely will the sellers make any repairs on the property – what you see (and maybe what you don’t see) is what you get.
c) Sometimes you have to deal with sellers who are not happy with their situation and may be difficult to deal with.
If you are needing to move by a certain date, I usually don’t recommend looking at short sales, but if you are in a place where you can stay until the process completes and you want to get a good deal, a short sale might be just the ticket for you. Unfortunately when you are looking through listings on the MLS there is no way for you to really know if a house is a short sale or not. You have to check with an agent to see if the sale is short or simply a great deal.
One final word – if the price in the MLS makes you think, wow, this is a great deal — look closely.