Short sale properties can provide savings like a home that is foreclosed but with fewer risks.
Homeowners who are selling their properties through this transaction can no longer make their monthly mortgage payments. Rather than having the bank foreclose the home, they negotiate with their lender to sell it for a price that is less than the outstanding amount of the loan. The bank recovers some of the debt, the seller sees less credit damage and you get to purchase a home at fair market value. If you're a real estate investor, this could mean a sizeable profit.
However, what you save on the price translates to more legwork. Here is what you need to know about buying a short sale home:
A home inspection is essential
Although you will purchase the property for an affordable price, you still have to ensure that the house is free of structural damage or other issues. Depending on your preferences, you can schedule an inspection before you submit an offer if you want to determine whether a property is worth further investigation. This strategy can be helpful if you're considering multiple homes and the market is moving fast.
If the area you're searching in had specific issues such as flooding or termites in the past, you may want have a more thorough review. This can include a mold inspection or pest inspection.
The process is longer
Before sellers can list their property as a short sale, they have to get permission and a legally binding agreement from the lender. Consequently, it may be a while before you're able to close on the home. There will be more setbacks if the homeowner has other liens on the house, including home equity lines of credit.
The bank also has to approve your offer. It can take a while before you receive a response. This isn't ideal if you're looking to purchase a property in a short amount of time.
The home is sold as-is
Although the property inspection gives you a detailed account of any issues with a short sale property, you are agreeing to buy the home as-is, meaning that you accept all its faults. The seller is already in dire straits financially, so the chances of getting him or her to foot the bill for repairs are small. The bank is already losing money on the sale, so it also won't be funding any maintenance.
Closing costs can be higher
Rather than repossess the house and deal with the property taxes and upkeep expenses, the lender gets to walk away with some money following a short sale. However, it will do whatever else it can to avoid losing more on the deal. This means many fees that are included as part of the closing costs that are sometimes paid by the lender will be your responsibility.
Short sales are typically in better shape than foreclosures
Repossessed homes tend to be in a state of disrepair because the. The owners are evicted and the bank isn't interested in regular maintenance. With a short sale property, on the other hand, the homeowner is still present and - hopefully - taking care of the home until you can move in.
Not only will you see unkempt lawns and dirty interiors with repossessed properties, but you can also see signs of vandalism and theft. With no one keeping an eye on the home, valuable copper wire and other building materials are easy targets. Depending on how long the property has been vacant, the utilities could be turned off, which will present additional issues and costs when you order the house inspection.