When you’re seeking a bargain property, you could be attracted to a short sale. A short sale is a way for distressed homeowner to sell their home and avoid foreclosure or further financial stress. It is also a way for a homeowner that owes more than what the property is worth to sell the home and avoid paying back any deficient amount. Buyers should avoid these five common mistakes when attempting to buy a short sale:
1. Expecting the list price to be accepted by the lender.
Some short sales can look impressive with more square footage or fancy upgrades all at a really great price. Getting emotionally attached to a home could cost you valuable time needed for your home search. Consider whether or not you can afford payments on a home that size, how you’d feel if the short sale lender made a counter-offer after you waited through the grueling short sale process. The price may be set low in order to attract multiple offers. Just because a short sale is listed for a certain price doesn’t mean the lender will accept that price. All short sale offers are subject to lender approval. Expect your initial offer to be countered. Don’t let other good deals slip by waiting for a deal that is too good to be true.
2. Foregoing the inspection.
In the hope of getting a lower offer accepted, you might opt not to have a home inspection. No matter what home you buy, it is always acceptable and a good idea to have a home inspection. Short sale lenders expect a buyer to ask for a home inspection. They lender may not agree to repairs, but knowing what issues are present before you purchase is key. You could ask for the sale price to be reduced, or you could ask for a release from the contract if the inspection issues seem to costly.
3. Neglecting to read legal and insurance documents.
Do your research relative to insurance costs. Ask an insurance company for a property coverage quote. Also, check online or call the local permitting department to see if the property has had any non-permitted renovations. Most short sales are purchased “as is” so knowing these issues upfront will help you make a more informed decision about the purchase.
4. Rushing the closing.
Short sales take a long time to get approved. Unlike a regular deal, the bank must agree to the negotiated terms or the agreed price. Know your timeframe when you make an offer on a short sale. If you need to move by a exact date, a short sale property might not be the best for you.
5. Assuming every short sale will get approved.
Just because you make a reasonable offer on a short sale does not mean it will get approved. The short sale lender reviews many factors before issuing a short sale approval. Fair market value is just one factor. The seller may not have a financial hardship or may have sufficient funds in the bank to pay any shortfall created by the sale. When reviewing a short sale for approval, the lender is not only qualifying the offer as fair and reasonable, but the lender is specifically reviewing and qualifying the sellers’ financial need to complete a short sale. Don’t assume that every seller in default or attempting a short sale has a qualified hardship. Ask good questions upfront about why the seller is trying to do the short sale. If the seller has the financially able to either afford the home or pay any short fall, no matter how great your offer the lender could decline it.
Short sales can be attractive, but you need all of the facts about the property before attempting the purchase -call Lakeside Title today to ensure you are providing your clients the best service and information. We have closed many short sales and can often times give you an idea of what to expect based on what lender will be making the approval decision.