You really have to understand the process of a short sale to be happy with this type of purchase. You will get a good deal, but you may get a bumpy ride. The experience depends on the ability of the listing agent who has the responsibility of getting all of the ingredients of th sale to come together, from the buyer & seller to the loan servicer & investor to the mortgage insurance company & the homeowners association. Here is what a recent buyer had to say:
The biggest thing that you have to understand is the terms of the Short Sale Addendum. It says the sale is contingent on the approval of the contract by the lender(s). In other words, the deal will not go through until the banks that are not getting fully paid approve the sale.
What does that do to you? It means that the property is still on the market until the bank approves the amount they are going to receive in the sale. The addendum requires the seller to keep trying to get offers that are higher than yours. If a better offer comes along, the bank will be more interested in that offer than your offer. If the listing agent representing the seller is decent, you will get a chance to out bid this other offer, instead of them just taking it and kicking you to the curb.
A related phenomenon is the negotiating tactics of some of the lenders that are reviewing short sale proposals. They like to bump the price at the last minute, and say you have a limited time to close, in an attempt to put pressure on you to take the higher price. I prepare my buyers for this tactic, because if you do not expect it you will hate waiting for weeks for a response, only to be told that you have to increase your offer immediately and close quickly. I teach negotiating, and there are measures you can use to counter this tactic.
The other facet of a short sale that you have to understand is that some banks take a long time to review the short sale proposal. So, if you have to buy a home and move in quickly, a short sale may not be for you. Since the amount of time the bank may take is not predictable with any great accuracy, you will need to be in a situation where you can deal with a long, indefinite period before you know that you have a deal.
The time factor is why short sales are great to be purchased by investors, as they do not care when the sale closes. However, most banks will require that they get about 90% of the Broker Price Opinion (BPO) of the value of the property. If the BPO value is close to market value, you can get the property at 10% below market. If the BPO value is below market value, you will get an even better deal. But, many investors are looking for better deals than that.
If the lenders would decrease the review time, more families would buy short sales and pay retail prices. Since a short sale makes a bank 30% more than a foreclosure on average, you would think that the banks would staff up their loss mitigation department, as most businesses would increase their staff to make 30% more money. But, banks look at a short sale as a loss, and they understaff the department to try to keep their losses down.
There are some banks that review short sales quickly, respond reasonably and close gracefully. So, if you are ready for a bumpy ride, you might get a pleasant surprise.
So, if you want to buy a short sale, you need patience and the ability to deal with the negotiating tactics. If you know how to work the short sale system, you will get a good house at a great price.
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