Buying a Short Sale
It’s a perfect time to buy a Short Sale – a great deal in the real estate market. Some sellers are forced to sell their homes without profit. During a “short sale”, the home is being sold less than the cost the owners owe for the loan on their home. Here is how to go about negotiating the best price on a short sale home.
What is a Short Sale?
A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.
- Find a good realtor
Choose a licensed realtor that preferably has worked with short sale property before. (You can request one through www.PremierePlusRealty.com – see the link below – and get a realtor with short sale experience to help you navigate the short sale market with a free referral)
- Find a desirable property being sold
With your realtor, find a property for your residence or investment that is being short sold by the seller. Properties may be advertised this way or not, but the longer a property has been on the market, the more price reductions it may have and will have a greater chance at being short sold by the seller. Wording in the listing that all offers will have to meet seller’ s bank approval is a tip off that it is a short sale.
- Negotiate the price to the fair market value
Make an offer. Here is where it gets tricky! You may have a house you want listed at $295,000. The owners may have paid $350,000 for the property and were forced to sell for whatever reason. Now, owners and their realtor may know the appraised value (let’s say $300,000) and what the bank is already willing to take but are not obligated to tell you. Your offer will need to be as close to the appraised value of the property as possible. First understand that the owner’s lending bank will be the deciding factor whether or not your offer will be accepted. But also know that the owner has the right to reject your offer if they feel it is too low as well. If you make an offer for $250,000 they can ask the bank to approve your offer, but if the home is appraising at $300,000, the bank is likely to reject it.
- Keep trying
If your offer is rejected, you can make another higher offer. Do not waste time making offers of $1000 increase more each time. This will waste time, and you may lose the sale. Make a fair market offer. Remember: Homes are appraising for MUCH LESS than what most owners have paid for the homes. Owners are “Upside Down” in their loans and this forces them to Short Sell. A Fair Market Offer still means you are getting a FANTASTIC Deal and saving HUGE amounts of money! If the home is appraising at $300,000, the bank will likely take close to that, so offer within roughly $25,000 of what property appraised. Once your offer is accepted by the bank as well, you should be able to close on the home within 30 days if your finances are in order.
Tips & Warnings
- Do not waste your time with an offer if it is extremely lower than the short sale listing price. (Offering $150,000 for a listing of $300,000). Even if the seller submits the offer for bank approval, the bank is under a legal obligation to obtain a fair market value for the price of the home, otherwise the bank can be held liable for the difference. Therefore, short sales are not a “buy it for nothing” deal. But you can still negotiate an awesome deal for much less than the buyer paid.
- Understand that short sales are granted by banks when the seller has a hardship reason. Since the seller is in a tight bind and fighting off foreclosure, he can still be held responsible to the bank for the difference in the sale price and the unpaid amount on the original loan. Sellers generally will not entertain pennies on the dollar offers.
- Many banks will not even respond to your offer if the price is too low. They are simply overwhelmed with offers on properties and do not have the time to respond if they feel the offer is not viable.
- If you have not heard back from the seller regarding their bank approval in two weeks, it is safe to assume that the bank has not even entertained your offer and you can resubmit a higher offer at that time.
- Always use a licensed realtor when buying property. Their expertise will help you through the entire purchasing process without having to deal directly with a seller.
- If you have legal concerns about a contract, seek the assistance of an attorney that specializes in real property.