Short Sales... Run Like Hell... Or Go For It?

Deciding whether or not to attempt to buy a house that is in a short-sale situation depends on several things

. Before getting into those, you probably need to know... What is a short sale?

A short sale is when the mortgage holder agrees to accept less for the payoff than the amount owed. They are in essence "selling it short". I could spend this entire blog explaining short sales but I don't want to re-create the wheel. There is an abundance of information out there that describes short sales, so you can do that due diligence offline.

As a buyer you need to know several things about short sales and the short sale process:

1 - You can sometimes get a better price than you could if the property was a foreclosure.

2 - It is a very slow process. If you have time restraints for when you have to be in your next home, a short sale is not for you.

3 - Most of the time short sales will be "as is" sales.

I want to elaborate on these three items.

Going through the forecosure process is very expensive for the mortgage holder. That is why they will sometimes agree to accepting less than what is owed. Once the mortgage holder pays to go through the foreclosure process, they tend to not come down as much because they are trying to recover some of the foreclosure costs. Some of the best deals out there right now are properties being considered for short sales. Our local MLS implemented a new area in the listing that puts everyone on notice that this property may be a candidate for a short sale. A savvy investor/buyer may want to key on that search criteria rather than the "foreclosure" designation.

Because the bank or the mortgage company has to be involved, the process can be painfully slow. After the buyers and sellers negotiate the terms and sign the contract, it has to go to the lender for their approval. In the past it has taken up to 60 days for the mortgage company to even let the parties know if they will accept the contract. That means that buyers could wait as long as 60 days and then hear that the mortgage company will not accept the offered price. That's 60 days waiting to hear something. It can be very frustrating. Even if they decide to accept the offer and sell short, it will take another 30 days to close the loan (assuming it wasn't a cash offer) which means the entire process could take as long as 90 days. For investors the wait is not that big of a deal, but most buyers that are planning to live in the home can't wait that long.

The majority of short sales are going to be "as is" sales. The sellers are usually not financially in a position to pay for any repairs and the bank or mortgage company is not going to come out of pocket to fix anytyhing, so the buyer usually has to agree to accept the property in it's current condition. The buyers have the right to get whatever inspections they desire, but the sellers nor the mortgage holder have to fix anything.

Short sales can be great bargains. Buyers just need to consider the time it could take to close and the unlikelyhood that any reapirs will be made. If you don't have that kind of time to wait around to hear back from the bank, or you are not the type of person that could live with an "as is" sale, you should probably "run like hell". If time is not an issue and you don't care if you have to make any needed repairs, then I would say "go for it!"

by: Kevin Burrus

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