QUESTIONS A BUYER OF SHORT SALES MAY HAVE.
Q) What exactly is a short sale?
A) A short sale is a type of real estate transaction that occurs when the home owner owns more to his lender/s than the current market value of the home. Although the home is sold by its owner, the purchase offer has to be approved by the bank or investor who holds the loan.
Q) I’ve heard it takes a long time to complete a short sale, is this true?
A) Yes, buying and selling a home offered as a short sale generally does take much longer than a non-short sale purchase. The actual time depends on a number of variables.
Some banks respond to a buyer’s offer in as little as 3-4 weeks. However, the majority of the lenders are taking 2-3 months just to respond to a purchase offer. We looked at 300 short sale transactions conducted over the summer of 2009 and found, on an average, it took 100 days from the acceptance of an offer to close of escrow. Patience is a big virtue when buying or selling a short sale.
Q) Will the home seller make repairs to the home if I find out there are problems?
A) This varies on every transaction. In general, the home buyer will be asked to sign an “AS IS” addendum as part of the purchase contract. The “AS IS” addendum puts the home buyer on notice that the home is being offered in the condition you see it and no repairs will be made.
There are requirements under the purchase contract and the AS IS addendum for some items to be in working order. A phone call about this subject is needed to go over the various possibilities.
Q) If the home owner accepts my offer does the lender have to as well?
A) This is probably one of the most confusing parts of buying a short sale home. Normally a buyer negotiates the purchase price with the home owner and you are done. However, with a short sale it’s a different story. Here is what we see on most short sales.
The home seller’s agent will list the home. He or she will try to get a few people to submit offers and present them to the home seller. The seller's agent then submits the best offer to us (Financial Relief Solutions -FRS) and we then submit and negotiate with the lender/bank for approval. The bank will compare the appraised value of the home with your offer. If they like what they see they may accept it or not. The lender may order the seller’s agent to send a counter offer to the agent who is representing you.
Short sales have a lot of variables so there is not cut and dry answer to this question. We believe the process will be more streamlined in 2010 and may things much easier for all. Home buyers are seeing a lot more short sales when they do their searches on the Internet. The reason is that short sale listings are on the rise, many homeowners owe more than there home is worth and offering their home by short sale is the best option for selling.
As a home buyer you may or may not want to look at short sales. The news has been full of reports as to how difficult they are to buy and some of the problems. Some of this news is true and some is outdated.
In 2007, 2008 and the first half of 2009, buying a short sale was a long, arduous journey and much of the time the deal fell apart at the end. However, we are starting to see the tide turn on this problem. Whereas only 8% of short sales actually sold in the past, we are seeing figures in the 40% range now and believe this will rise.
Why would you consider buying a short sale property?
* As of this writing, December 2009, nearly 40% of the properties for sale in the market are short sales. If you avoid short sales you are missing 4 out of ten homes.
* Short sales are generally less expensive than homes sold by home owners in the traditional manner.
* We find that many short sales are in better condition than bank-owned homes.
* Most people selling a short sale have lived in the home and can provide property disclosures to the buyer. this is not the case with bank-owned homes.
* Many of the short sales we're seeing are owner occupied and have not been seriously damaged by angry homeowners facing foreclosure.
* The process is getting more streamlined and the potential to close escrow is rising. New policy due to take effect in January 2010 should help tremendously.
Why wouldn't you want to buy a short sale?
* They still take a long time to close escrow. Most of the experts we talk to say it still takes 2-3 months to close escrow once you have a accepted offer from the home seller.
* There are no guaranties the bank will accept your offer. You won't know this for a few months and this can be frustrating.
* If you have a pretty tight time table for moving into a new home, short sales are probably a poor options.
* Homes are sold "AS IS" so it is doubtful the home owners will be fixing anything that comes up in the inspection. In a traditional purchase, the seller often repairs items of concern to the buyer.
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