Post recession, the housing market is flooded with short sales—an unprecedented number, in fact. Data from January of this year showed a 33% rise in short sales in the U.S. compared to last year, according to CNN Money. In some hard-hit states, like California and Florida, short sales outnumber foreclosures.
In the past, buyers haven’t had to deal with short sales or foreclosures. The vast majority of sales, pre-recession, were conventional. Buying a short sale is anything but conventional, though, and it can cause a headache for a homebuyer.
A home is called a short sale when the value of a home drops so much that the homeowner owes more on their home than it is currently worth. The sale price is also probably lower than market value, sometimes noticeably so, because the seller’s lender has agreed to accept a price below market value to release the mortgage. Short sales attract a lot of attention from buyers, sometimes creating a bidding war. The winner may get a good deal, but they face a number of challenges in actually buying the home.
In a short sale, the lending bank does not actually own the home, as it does in a foreclosure. “With a short sale, the lender has to approve the purchase and sale agreement, which can take some time, but this is a good option for some sellers who have a marketable home,” explains consumer advocacy group Direct Lending Solutions. Sometimes the wait can be several months, and sometimes the bank never responds. Other terms of the sale may be subject to the lender’s approval, too, which your agent can help you determine.
Some short sales are already bank-approved, meaning the bank has approved the sale price. These types of sales are usually less cumbersome, with a shorter waiting time. Your agent can help you determine whether the sale is bank-approved. It’s important to choose an agent who is familiar with short sales and has closed on several. These qualities will help ensure you’re hiring a knowledgeable, reliable agent who will help smooth the process.
Even once you’re under contract with a short sale, keep looking at other homes. Be prepared with a backup plan if your short sale purchase falls through or if the bank does not respond. Patience is important, as is full knowledge of the situation you’re entering into. Though it might be a headache, buying a short sale can also be a fantastic opportunity for a home buyer.
Megan Hill is a ‘freelance writer extra ordinaire’ as she states, writing for companies in the real estate industry
This article reflects the personal opinion and expertise of the mentioned author and not that of Khusan.com