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The prolonged downturn in the housing market has left many homeowners with no other option for selling their homes than to attempt a short sale. This type of transaction occurs when a homeowner owes more on their mortgage than the current value of the home.
In order to avoid taking ownership of the home through an expensive foreclosure, the bank holding the lien on the property is often willing to allow a special sale where the home is sold directly to an interested buyer for less than the amount owed on the current loan.
This is often a fantastic opportunity for a qualified buyer to save big on the purchase of a new home and a way for the home seller to get out from under a financial burden without the massive damage to their credit score a foreclosure would create.
While buying a home this way can be an excellent way to get a great deal on a real estate purchase, the transactions can be rather complicated and don’t close nearly as fast as a traditional purchase in many cases.
How it Works
Here is a quick overview of what you may be dealing with when you decide to go after a short-sale property. The first hurdle that must be overcome is arriving at a price that both the buyer and the seller are willing to agree on. As you can see, it begins much like any other real estate transaction.
The thing you have to keep in mind here is that the seller in this case is not the party who is going to ultimately control the selling process. The bank that holds the note will have the final say as to whether or not the selling price is acceptable and if the transaction will be allowed to move forward.
This can be complicated even further if the homeowner has a second mortgage on the property and there are actually multiple lien holders.
In these cases, the two finance providers must also reach an agreement as to how the proceeds from the transaction are to be split between them. This can be a time-consuming process and if one institution decides that they are not happy with the split, it can prevent the deal from moving forward.
As long as you are willing to be patient as a buyer while this process works itself out, the satisfaction of buying a home at below-market value can be a satisfying reward.
Speeding up the Process
If you are considering purchasing a short sale, it is extremely important that you are prepared and well-organized going into the process so you can move as fast as possible.
1. You must be pre-approved
Note that I did say pre-approved and not “pre-qualified” here. When buying a short-sale property, the bank will want to see that they have a 100% pre-approved buyer in place before they take the time to evaluate the potential transaction.
Start by selecting a mortgage lender and going through the application process at least 30 to 60 days before you plan to make an offer on a home so you can make sure that your loan is fully approved and ready to go.
2. Select a real estate agent with experience handling short-sale homes
This is nearly as important as getting pre-approved. Buying one and getting it to close requires a lot of phone calls and negotiation. Having an experienced professional on your side who knows exactly who to call and when to call them can make the difference between a successful transaction and one that never makes it to the desk of a negotiator at the bank.
Banks are notoriously slow to move on these transactions and having someone to push the process along at each stage makes a huge difference.
3. Be prepared to wait
Short sales take an average of 60 to 120 days to complete and I have personally been party to a transaction that took nearly nine months. Be sure you and your family have a plan for where you will live while you complete the process.
4. Identify several homes of interest.
You can improve your odds of being able to close on a home fast if you are open to several different properties. That way if you find that one hits a roadblock or just isn’t progressing the way you would like, you can be ready to move quickly on another property.
Often times with short sales, the first offer to come in is the one that gets submitted to the bank. You don’t want to find yourself in the position of being a backup offer where yours only goes in if someone else’s transaction doesn’t come together.
The Reward
As long as you are patient and have planned well, the reward for your efforts will quickly become apparent on moving day! There’s no better feeling than to move into the house of your dreams knowing that you got the deal of a lifetime.
The current real estate downturn will likely be referred to as a “bust” for quite some time but there will be silent winners scooping up beautiful homes at bargain basement prices along the way. You can turn a deflated economy into an incredible investment opportunity.
One of the biggest advantages to buying a short-sale home is that you can live in and enjoy your investment while you wait for it to grow (try doing that with your saving account)! Done properly, buying a home this way is potentially a great way to realize the benefits of home ownership. Depending on when you complete your purchase, you may even be able to qualify for some significant tax advantages as well.