Frisco Texas Residential

Short Sales can be a great win-win scenario for all parties. For buyers, it is an opportunity to take advantage of today's market and purchase a home at a price lower than what is owed on the current mortgage. For the homeowner, it will help keep a foreclosure off of their financial records and get them out from under a great burden. For the banks, they save the time and expense of going through the foreclosure process, which could actually cost them more in the long run.

So what exactly is a Short Sale?

Short Sales most often occur just prior to foreclosure (also known as pre-foreclosures) when a homeowner owes more for the house than current market value. There are a few qualifications for a home to be considered a short-sale:

1. The homeowner must currently be in default with their current mortgage company
2. The homeowner owes more for the house than what it is currently worth
3. The homeowner has a legitimate hardship case, as defined by the bank.

As you can imagine this is quite a difficult and stressful time for the homeowner. The homeowner’s priority is to get out from under the house payments, save their record from reflecting a foreclosure, and maintain a little dignity in the process.

The Truth About Short-Sales

Forget all the hype you hear from the late night infomercials and real estate seminars that disperse mostly useless information. Short-sales are not always a goldmine waiting to happen for buyers and there are often many challenges to overcome along the way. Depending on your priorities and goals, short-sales may not be worth the headache.

Keep in mind several factors must be in place to make a short-sale work. First, the listing agent who has posted the property for sale should understand how the process works. Just because they have the listing doesn't make this true! The key is that they must have obtained the bank’s approval for a short sale before it was listed. Unfortunately, this is frequently not the case. In an effort to get the house listed as soon as possible, many "short-sales" are put on the market but the bank has yet to be contacted and approval never received. The result is that many deals have fallen through because of offers that were accepted by the homeowner but rejected by the bank. Once a bank approves the home for short-sale, the homeowner and listing agent have NO SAY in accepting a lower offer.

In addition, banks operate Monday through Friday in the time zone of their local office. They are inundated with short-sale and foreclosure proceedings and often do not respond quickly. It is not uncommon for a short-sale deal to go on for 2-3 months!

Besides inexperienced parties involved and lengthy time considerations, there are other challenges in the process as well. Often there are other judgments/liens attached to the property that must be satisfied, clouds on the Title that must be cleared, and disconnected utilities that must be reconnected at the purchasers expense (home inspectors can’t inspect the property and the Buyer has to pay for the utilities to be turned on).

Can You Really Get a Deal Buying a Short-Sale?

Maybe, maybe not. Again, it depends on your purchasing goals. Short-sales make less sense for investors looking to flip a property for quick profit. They are better suited for owner-occupied buyers and “buy and hold” investors. Rarely will you find a short-sale that is discounted less than 80% of its appraised value (an appraisal is ordered on every short-sale property and that value is used to determine a bottom line sales price for the banks). In reality many banks will only discount the homes between 5% - 10% off the appraisal.

For example, suppose you bought a short-sale property appraised at $200,000 for 90% of appraisal (10% off). Your purchase price is $180,000 plus acquisition costs. For a typical owner-occupant, this is a great deal. For an investor, the profit margin erodes quickly by paying out closing costs, lender fees, carrying-costs, commissions, and maintenance/repair/replacement items.

Conclusion

While short-sales may appear to be a sure pathway to real estate wealth, they are not without significant challenges. Purchasing a short-sales requires a great deal of patience and an understanding of the process. They are ideal for buyers who are not pressured by time and are happy with a 5%-20% discount off of the appraised value.

So, are you still interested in buying a short-sale property? If so, then start your search here, and give me a call when you ready to go look at homes!