The Hidden Benefits of Buying a Short Sale
Buying a short sale can be a tough negotiation, but when it’s done properly, especially in a seller’s market, buyers stand to benefit significantly. Knowing the benefits of buying a short sale as well as the potential problems will make the process go smoothly. Done correctly, a short sale can save you money and allow you to build equity fast.
What are the Benefits of Buying a Short Sale?
What is a short sale?
Before considering buying a short sale, it is important to know what it is and how it is different than other types of real estate contracts. A short sale is sometimes confused with a foreclosure. A foreclosure occurs when a bank takes ownership of a home after a mortgage is not paid. A short sale occurs when the money owed on the home may be paid by the sale of the home. In the case of foreclosure, the lender (bank) and previous owner both lose money. In the case of a short sale, the lender attempts to recoup the original buyer’s loan, with the goal of breaking even and incurring no more costs. There are significant benefits of buying a short sale over a foreclosure.
Buying a Short Sale Means a Lower Price
The number one reason for buying a short sale is the same reason buyers purchase foreclosures: the low price. A bank makes a short sale to cover the remainder of the unpaid loan made to the original buyer, which is usually less than the market value of the house. Generally, the bank only agrees to these terms when it is certain the original owner will not be able to pay the loan. Therefore, selling the home for the amount of the remaining debt is better than receiving nothing, and also preferred to letting the house sit empty, incurring more costs and losing value through neglect. Buyers should be cautious when considering a short sale because buying a short sale does not always mean a lower price. A drop in the housing market or a sudden fall in the neighborhood’s real estate value can bring the property underwater, and a short sale will actually be higher than market value. Knowing how the housing inventory affects the real estate market and how to evaluate a home’s listing price will help you determine whether the house is a deal or not. As with any real estate agreement, it is important to work with a real estate professional to determine the value of the home and a fair price.
No Hard Feelings
In the case of foreclosure, the original owner has no incentive to work with lenders or buyers, and may actually work against them. This often leads to messy legal battles, forcible removal, or destruction of property. Though a short sale is not ideal for the seller, the financial repercussions are less extreme than with a foreclosure. Minimized credit damage and the opportunity for debt resolution incentivizes the seller to agree to the short sale. The bank also seeks to resolve the situation. This makes buying a short sale easier than a foreclosure, without sacrificing the low price.
Buying a Short Sale With Financing
It is in the lender’s and the seller’s best interests to sell a short sale quickly, avoiding accruing more debt and more costs. Once the terms are agreed upon, lenders are more likely to work with the new home owners buying a short sale. While there are more steps involved in negotiating a short sale between the lender and seller, financing options are available and more flexible in most cases. This is not always the case with foreclosures.
Buying a Short Sale Means Free Equity
Short sales are often fixer uppers, since the original owners usually don’t have the resources to reinvest in or maintain their home. However, while foreclosures are often in infamously bad condition, short sales usually only suffer from neglect, and not deliberate damage. If you can accurately gauge the pros and cons of buying a fixer upper and you are ready for the project, you will put sweat equity into your new home. Since short sales tend to sell below market value from the start, it is easy to put equity into your home right away. With just a few DIY home projects to build equity, you can make drastic changes in the appearance and value of the home.
Buying a short sale requires navigating a complicated real estate agreement and it is important to know all of the costs involved. To beat other bidders, make a competitive home offer and get the price you want, it is also essential to file documents and respond to requests as quickly as possible. Before buying a short sale, speak with a real estate professional. With the right expertise, you can reap all the benefits of a short sale and avoid pitfalls. Have you purchased a short sale? What was your experience? Let us know in the comments!
