- October 30th, 2012
If you are in the process of buying a home, we are sure you are familiar with the term “short sale.” A short sale means the current homeowners have a mortgage that is underwater, so they are selling the home for less than what they owe on the property. The lenders on the home’s mortgage will be forgiving the debt difference.
Many people in the market to buy a home may consider finding a good value by looking at short sale listings. While you may be able to find a great deal with a short sale, you should also consider a few downsides of considering a short sale home.
1. Red tape. If you find the perfect home, negotiating and closing on a deal is not as simple as on a regular new home, since the contract must be agreed upon by the seller and the lender. If more than one lender is involved, they must agree as well. The process requires much more paperwork, approvals, and the involvement of more parties, so it can take considerably longer than a typical sale.
2. You have little control of the transaction. The lender is not concerned with where you are living now, or if you hope to close by a certain date. You are relying on the listing agent to know what they are doing, the bank to take the proper steps, and the seller (who has a huge amount of paperwork to complete that will ultimately damage credit) to all move the many, many pieces along. The process is likely going to be long and frustrating, and there is nothing you can do to keep it moving forward.
3. Unknown end date can mean a long, inconvenient wait. Because of all of the approvals and paperwork mentioned above, this means you will likely be waiting much longer for the home to be yours. This means you are going to have to wait and watch other listings for homes pop up, but you will be committed to the contract you are waiting on so you cannot pursue other desirable homes. You also may have to find temporary housing if you have sold or are renting out a different property you may already own.
4. It may not actually be a good deal. Short sales simply mean the owner owes more than what the home is worth. The seller may have purchased the home at the top of the market, and now the value of the home has dropped significantly. This difference doesn’t always equal a savings for the buyer—it simply means there is a difference between the purchase price and the current value.
5. Higher closing costs. Lenders will not be likely to pay for inspections, warranties, or other closing costs like a typical seller would. This also detracts from the value you are getting on the home.
6. Home is sold “as is.” The lender will not fix anything that an inspection may find, and the homeowner likely has not maintained the home well, since there would be no benefit to them. So you are likely going to have to put work into the house, which usually means money. Depending on what these repairs and improvements may be, the “deal” you are getting might not actually be a deal.
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