Buying a Home that's a Short Sale

So many of my friends and clients seem to be confused about short sales....so I thought I would try and shed some light. Short sales are NOT bank owned properties--they have NOT been foreclosed upon.

Short sales are when a mortgage holder agrees to take less than the unpaid balance on a loan. These are more common today because of the mortgage boom and bust. A lot of people overpaid for their homes a few years ago. Now for whatever reason they need to sell and home values have dropped. So maybe the house they paid $400,000 for may be worth only $320,000. How can they take $320K ( or less, after commissions, closing costs etc.) and still pay off their mortgage? They can't -- hence the short sale.

Most of my clients are the buyers in a short sale situation. For buyers, here are some important things to keep in mind:

1) Short sales can take longer to close - You are essentially negotiating a selling price with multiple parties - the homeowner, their lender, and possibly more than one lender and a mortgage insurer. They all need to get paid so they all have a say in the negotiations. Lenders tend to be very backed up with shorts sales and foreclosures too, so they don't always respond to offers in a timely manner.

2) Low ball offers don't work - So many of my clients think, "Great! A short sale! Let's offer half of the asking price and see what happens!" I can tell you what happens...your offer goes to the bottom of the pile or in the proverbial circular file. In most cases, the home is already a pretty good deal and crazy low offers will be ignored. Also, the lender(s) have a bottom price in mind and they won't take less for it.

3) Lenders can counter your offer - Again, don't think you're going to get it with the first offer you bring in the door.

4) Short sale deals fall apart - Because the transactions are so complex with many parties involved, issues can arise at any time right up to the day of closing. I suggest you never count your chickens on these ones until the title is transferred.

5) Have your ducks in a row - Lenders are more responsive if you have a preapproval for a loan and a good down payment.

Have I scared you off? I hope not. There are lots of short sales out there -- probably more than anyone realizes at this point -- and they can be a great opportunity. With a lot of patience, a flexible timeline, and a GREAT real estate professional (like me) who can walk you through the process, a short sale can be a smart buy.