While short sales have been around for some time they have gained popularity primarily over the last eight years. Simply put a short sale is a real estate transaction where the seller agrees to take less than the amount owed. They do this because the homeowner has most likely defaulted on their payments and they want to move on from the property. While most markets have seen a steady decline in short sales there are still plenty of deals out there. Some of these deals can present great value however there are some obstacles to close. Before you decide to pursue a short sale here are some items you should be aware of that can derail your transaction.
Difficult approval process.The biggest hurdle to closing a short sale is the approval process. With a traditional purchase the lender only has to worry about approving the buyer. With a short sale not only does the buyer have to get approved but the seller has to as well. Before a short sale can get very far the lender needs to evaluate whether or not the seller has a legitimate hardship that is preventing them from paying. There are many cases when a property will present itself as a short sale without having confirmation from the lender. Even after the seller is approved there is work to be done from the buyer. Lenders want to make sure that any offer they accept will actually close. Cash offers, even at a discount, are given priority followed closely by high down payment offers. If you do not have a significant down payment and sterling credit your offer may not stand much of a chance.
Length of transaction.Even though short sales have gotten much quicker they still take much longer than a traditional lender transaction. It is not uncommon for a short sale to take at least ninety days and in some cases as long as six months. If you have no problem waiting you may be able to get a great deal. If you need to move in a timely manner a short sale may restrict you from pursuing other properties. The time that it takes to get an approval from the selling lender can lead to problems with your mortgage financing. Issues concerning the rate lock, appraisal and gathering specific documents will leave your approval in limbo until you know what is going on.
Uncertainty.Another common complaint about short sales is the uncertainty in the transaction. Even when you think the deal is approved you may not be out of the woods. Things can change weeks after you receive your written approval from the lender. After waiting for weeks you will be forced to spring into action and close your deal in just a few weeks. You are also at the mercy of how the lender valuates the property. You and the seller may agree on a price, the appraisal may justify that price but unless the lender agrees to it you won’t have a deal. Many buyers are not comfortable with this level of uncertainty.
For the right buyer a short sale can be a great way to get a property at a deep discount. Before you entertain a short sale you need to be comfortable with whole process and everything it entails.