Are you looking at buying a new home?
Let me guess. One of your friends told you a short-sale is a great deal.
So you think you should buy one.
I have some good news and bad news.
Your friend can be right but she can also be wrong.
It still depends on the price and condition of the home.
And there are some added challenges to buying a short-sale.
But before we can get into all of those, you need to know what a short-sale is.
What is a Short-Sale?
A short-sale is when a someone sells their home for less than the current loan balance on the home.
For example, when I bought a short-sale, the seller sold it for $295,000 when the loan balance was $372,000.
The seller doesn’t normally pay the difference in the loan amount and sales price.
If she had the money to do that, she wouldn’t be selling.
Most of the time the lender takes a loss on the sale.
So guess what. The lender has to approve of the sale.
This leads us to discussing the logistics of buying a short-sale so lets discuss it.
How Do You Buy a Short-Sale?
Buying a short-sale is very similar to buying a normal house.
You get pre-approved by a lender and find a house through your real estate agent.
But when you make your offer, it can take months to get a response.
So if you have a short time table for moving, a short-sale isn’t for you.
The offer you make gets sent to the seller’s lender with a closing statement.
The closing statement will show the lender how much money it’s going to lose by selling the house.
If the closing statement is approved, then you have the green light to move forward.
The rest of the process for the buyer is the same just don’t expect the lender to make any repairs.
Or have any information on the condition of the home.
I was fortunate with my short-sale.
I offered in January and I closed on the house in March.
It doesn’t get much faster than that in the short-sale world.
Here Are a Couple of Items to Watch
You need to pay attention to the condition of the home.
Usually a short-sale isn’t maintained well. So you will have some repairs to do and they can be expensive.
I had to replace every appliance, the heating and air conditioning system, the water heater and a rotten deck.
Needless to say it’s been one project after another.
If you don’t like doing those projects or don’t have the money to do them, you are better off buying a well-maintained home.
Another tripping point is how the lender delivers title to you.
Title is the document that shows you any legal issues your house has. You want a clear title when you buy the house.
For example, a mortgage will show up on title. When you buy a house, you want the previous mortgage removed before closing.
Other things show up on title too like unpaid Homeowner Association Dues.
Back to our short sale, the lender doesn’t care what condition you receive title.
They approved a closing statement and if it wasn’t taken care of in that closing statement, someone else is paying for it and they don’t care who.
This issue almost killed me buying my house.
The seller’s lender approved the closing statement without paying off the unpaid Homeowner Association Dues.
That was $3,000 someone had to come up with and I wasn’t willing to pay them because I didn’t live there to accrue those dues.
And the seller couldn’t pay them. Luckily the Homeowner’s Association wrote off the fees.
So you can see buying a short-sale sounds great but it’s definitely an adventure.
Short-sales can be great deals.
Or they can be terrible deals.
It depends on the specifics of the individual deal.
And it’s not easy buying one. It’s more difficult than a normal transaction and it requires a lot of patience.
So if you are up for the task, go for it.
Do you have a short-sale story?
Let me know in the comments below.
Click the link to return to Finance Footing home.