Buying a short sale might be one of the best possible ways to get an amazing deal on your next house, and pulling off this type of transaction is more popular than ever before.
While short sales are becoming more and more popular, there is still a lot of confusion about what exactly they are and how the process works. The general concept is really quite simple, but the art of actually pulling off a short sale can be a bit more involved.
Let’s take a closer look at the details that make up a short sale:
What is a short sale?
The term “short sale” refers to a transaction where a property is purchased for less than the amount that is owed on that property by the current owner. The lender that holds the existing mortgage is often willing to accept less than the full amount owed in these situations in order to avoid the costs associated with foreclosing on the property.
The perfect short sale scenario results in a positive outcome for all three parties involved. The new owners are able to purchase a home at a significant discount. The current lender is able to recoup some of their losses on the existing mortgage, and the current owners are able to walk away from a bad situation.
How does the process work?
The short sale process basically begins and ends with convincing the bank that holds the mortgage that they are better off to take a reduced price offer than to go through the hassle of foreclosing on a property and then attempting to sell it themselves.
Banks aren’t usually interested in being in the real estate business, so this is not necessarily a difficult sell.
In order to start the process, the current owners need to demonstrate that they have come into some sort of financial hardship that is preventing them from staying current with their mortgage payments.
While a short sale might seem like a fantastic opportunity for the new buyers that are going to be getting a steep discount, there are plenty of pitfalls that come with the territory.
Here are some of the most common risks associated with purchasing a short sale:
In many short sale situations, the financial hardships that the current owners have been struggling with have made it difficult for them to keep up with regular home maintenance.
Avoiding basic tasks like changing air conditioning or furnace filters and cleaning out the gutters could create larger problems down the road for the new owners that are not visible at the time of the sale.
Not Enough Time
In most short sale scenarios, the lending bank has already started the process of foreclosing on the home. That means that there is usually a small time window where a short sale can be pulled off before the entire situation changes and the bank takes ownership.
Potential for Heartbreak
Because there are so many additional working parts with short sales, there are more things that could go wrong. Unfortunately, most of these things will be beyond your control.
This means that anyone looking to purchase a home through a short sale needs to understand that there is a good chance they will not reach closing. This can be difficult to deal with if you allow yourself to fall in love with the home during the short sale process.
Seller Financial Issues
Another pitfall that is common with short sales is that the seller might have additional financial issues that can interfere with your life in your new home.
In some instances, sellers might try to take out additional loans against the house right before closing. You can also count on dealing with various collection calls and letters looking for the previous owners.
Short sales can be a great way to purchase your next home at an amazing discount. As long as you are smart, patient, and watching out for some of the common pitfalls, you can become a happy short sale buyer too.Your local Carrington Real Estate Services agent can help you navigate the sometimes choppy waters of buying a short sale. Contact an agent today.