A short sale occurs when the owner of property sells the home for less than the mortgage they owe on it. The lender then agrees to take a short on the mortgage in order to release the property for sale. Typically, this is seen as the last step before foreclosure.
If you are thinking about buying a short sale, there are a few things you should know.
1. How does a short sale happen?
A short sale occurs after a low appraisal drop in property values. For example, say a family buys a home for $200,000. After five years, they’ve paid $40,000 to the principal. This leaves them with $160,000 in the mortgage. Assuming they have to sell the home right away, they would have to sell it for $160,000 in order to break even.
If the property is valued at less than $160,000, then the family would have to short the distance between the $160,000 and the property’s value.
2. What is needed for a short sale to go through?
Ultimately, it all depends on the lender. The lender must agree to accept less than what the owner owes on the mortgage, but it comes with contingencies. For example, the lender has to agree to the sales price, which can take longer than a traditional sale. “The sales price for a short sale property is negotiated between the lender and the seller.”
3. As a homebuyer, can you negotiate the price of a short sale?
The sales price is negotiated between the seller and the lender; the buyer has little to do with this process.
4. Is a short sale cheaper than the surrounding homes?
In the short term, you may pay up to 10% less than the market average. However, there are additional costs to consider when purchasing a short sale, such as repairs, liens, and delinquent HOA fees.
5. Who do you need to work with when purchasing a short sale?
Work with a well-reviewed agent who has handled short sales before. You will also need a trusted home inspector to inspect the property.
If you have any other questions about buying a short sale or about real estate in general, just give me a call or send me an email. I would be happy to help you!