Until a few years ago, short sales were a rarity. However, they're more popular now than ever, and it appears they will continue to be popular for several years. Bargain hunters usually encounter more than one short sale on the market.
It's possible to save more than 20% by taking advantage of this type of sale. Although this option might seem attractive, it's important to be aware that short sales are also complicated to close on. Getting an offer accepted is the first and most difficult task. Since these transactions are difficult and lengthy, it's important to work with an agent who is knowledgeable about short sales.
Short sales are used by owners who are unable to meet their monthly mortgage payments. The lender agrees to release the lien on the property, take a loss and collect the proceeds from the property's sale. Since short sales are a much brighter option for homeowners than foreclosure, many are choosing this path today.
Lenders, while reluctant to lose money, understand that a short sale is often less expensive for them than foreclosure. Foreclosure volumes have risen significantly and are expected to continue to rise in the future.
Although short sales are rising in popularity, they're still difficult to finish. Completing a short sale takes persistence, patience and the help of an experienced agent. Communication is one of the most critical issues. For those who are willing to give a short sale a try, it's important to consider the following six steps for improving chances of successful completion:
Six steps to improve your chances
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Ensure credit is good and get pre-qualified.
Many people who buy short sales are investors with cash on hand, and lenders view those offers as low risk. To compete, check your credit score and history, get a pre-qualification letter from a reputable lender, avoid new credit use, and make payments on time until closing.
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Make an offer with a promise to deposit funds in a trust account.
Although $1,000 is common in many home sales, it's often better to offer between 1% and 3% of the sale price to show the seller your offer is both serious and enticing.
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Research pricing for similar short sales.
Some listings are advertised well below value to attract attention; contact a reputable agent to learn current list prices and whether other offers exist. Many banks approve short sales that are less than about 10% under market value, so comparable pricing is important.
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Be sure the agent has good software.
Not all agents use up-to-date short-sale systems. Electronic tools that help with documents, tracking, communication and reporting can speed the process and reduce errors.
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Shorten the inspection contingency period.
Try to line up two or three inspectors in advance so you can shorten the contingency window. Sellers are more likely to accept an offer if closing time can be reduced.
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Maintain patience throughout the process.
Short sales can be lengthy and require persistence; conveying patience to the seller and other parties helps keep the transaction on track.
The process of a short sale is often worth the time and effort for buyers seeking a strong deal. Although the process can be tedious, short-sale properties are frequently in better condition than homes that have been vacant following foreclosure.
Be sure to contact a reliable agent when considering this type of purchase.
Frequently Asked Questions
What is a short sale?
A short sale is when a lender agrees to accept less than the outstanding mortgage balance to release the lien and allow the property to be sold.
How long does a short sale usually take to close?
Timing varies widely, but short sales typically take longer than typical purchases because they require lender approval and additional documentation.
Will a short sale hurt my credit?
A short sale can affect credit, but the impact is usually less severe than a completed foreclosure; individual results depend on credit history and how the lender reports the transaction.
Can a buyer make contingencies when offering on a short sale?
Yes, but shorter inspection and financing contingency periods make offers more attractive to sellers and their lenders.