What is a short sale?
A short sale is the sale of a home for less than the homeowner owes on the mortgage. A short sale typically occurs when the homeowner has fallen behind on the mortgage payments due to financial hardship. For the bank or other lender that owns the mortgage, a short sale is preferable to letting a home go into foreclosure.
A short sale home can be a good opportunity for some buyers, but also presents challenges.
The pros of buying a short sale
- You could get a good deal. Banks (and homeowners) are motivated to find a buyer for a short sale as soon as possible, so sometimes they’ll list the home at a low price to keep it from languishing on the market.
- There’s less competition. Short sales take a while to finalize, and many buyers aren’t willing to wait. That means you’re less likely to get caught in a bidding war that can drive up the price, especially in a hot market.
- It can be less risky than buying a foreclosure. In most cases, homeowners continue to occupy the home, and they’re not as likely to neglect or destroy the property before the sale is final, which can be the case with foreclosures. There’s also less opportunity for vandals to damage the home.
The cons of buying a short sale
- The process can be long and frustrating. Despite their name, short sales are usually not short. Because all the seller’s creditors have to approve the offer, escrow often drags on for months—with no guarantee the sale will be approved.
- Sometimes it’s not worth the wait. Just because a home is a short sale doesn’t mean the asking price is a fantastic deal. The lenders will try to recoup as much of their money as possible and will often set a competitive price.
- The home may require costly repairs. Some short sale homes fall into disrepair because the owner can’t afford repairs or maintenance. In many cases, you can do a home inspection before committing to buying the property. But if major issues are discovered, there is no option to ask the bank for a concession or a lower sale price to cover these costs.
If your’e thinking about buying a short sale property, Jones Hollow can walk you through the process and ask the seller’s lender exactly where the process stands. That way you can gauge how long you’re likely to wait for the lender to make a decision about the sale, and if it’s too long, you can move on.