A short sale occurs when a property is sold at a price less than the amount the homeowner owes on the mortgage, and the homeowner’s mortgage lender(s) agrees to the “short” payoff. A lender may accept a short sale with the property worth less than the balance of the mortgage if: the borrower is no longer financially capable to make the monthly loan payment, does not have enough money to pay back the full balance of loan and needs to move out of the property.
Purchasing a home on a short sale can be beneficial to the buyer and seller. A home seller avoids foreclosure and the consequences that go along with a foreclosure, which will allow for an easier transition into more affordable housing. A buyer avoids the risk of buying a foreclosed property and receives a fair market value on the home.
If you are considering purchasing a short sale home, take precaution and make sure you avoid these 5 common mistakes:
1.) Ignoring property problems
Short sellers are motivated to sell and repair their credit, so they will most likely fill out a property condition disclosure form. However, there is the possibility that the seller may not have thoroughly followed through on essential maintenance to the roof, furnace, air conditioner, hot water heater, etc. Also, since the seller is in a bit of a financial bind, it is most likely the home has not seen a cosmetic face lift for a number of years.
2.) Skipping the home inspection
As the potential buyer, you should make time to tag along on the home inspection of the short sale home. This is the time where the house is open for all criticism and questions. By drawing attention to questionable items/problems within the house, you may be able drop the price of thehome due to renovations. Also do not forget to ask about repair estimates when an inspector records a problem because homeowners typically underestimate the true cost of renovations.
If you are interested in purchasing a short sale home, you may want to consider doing an inspection on the property before you make an offer. A preoffer inspection allows potential buyers to walk away and find a better investment.
3.) Ignoring legal and insurance information
A typical disclosure statement would specify if a house was in a flood plain or had an unpermitted renovations. Bank-owned properties often sell “as is” without disclosure, buyers need to do extra research on the home’s status. Make sure that all renovations have been permitted and approved.
4.) Leaving too little time for closing
Short sale homebuyers need to be aware that the sale won’t necessarily close as quickly as it would for a traditional home. The seller’s lender must grant approval of the short sale price. Sometimes legal troubles can influence closing. For example, a buyer could wait months on a bank-owned property while the bank continually pushes back the close date due to unresolved liens.
5.) Having your mind set on a bad home
Consider the house’s condition, inspection, price and value dispassionately. Now ask yourself these three common sense questions.
- If you were to buy this property, could you afford to rent it out for as much as, or less than, your mortgage payment?
- What if the home’s value drops another 20% percent, will you still feel confident in your purchase?
- How much money are you willing to invest into the property (if necessary)?
Some homebuyers do not want to listen to inspectors because they believe it is their house already and they love it, even if there is a slope in the floor or cracks on the basement walls.
In the end, if you are in the market for a new home and are considering a short sale home, avoid the five mistakes above. Remember your Homesale Agent is here to guide you through the process by providing you with thorough information and keeping your best interest at the top of their priorities.