Does anyone have any experience with buying short sales of houses or condos? I ask because I believe I've found something at a good price in my area, but I'm a little unsure if there are any 'gotchas' with short sales, compared to regular sales or even foreclosures.
Short sales of houses?
-
George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
Time. Time for the mortgage holder to approve the short sale. That's the biggest gotcha. If you don't have time on your side (e.g. you NEED to close because you need a place to live or the house you're selling has you on a deadline to move out), then don't bother bidding on short sales. It can sometimes take 2-3 months for the lender to get back to you.
-
Mr. Overlord
- Posts: 48
- Joined: Tue Sep 07, 2010 6:17 pm
I purchased a condo via a short sale. One thing you have to be careful about is whether the sale is "approved" or "unapproved." An approved short sale is a lot easier to work with because the bank has already given the seller the OK to sell the property at the price listed. An unapproved short sale is dicier because the seller can't sell you the property for their list price unless the bank gives the OK. As George said, persuading the bank to approve the deal happens only after a contract is signed, and can take months and months. The bank is interested in making sure the seller pays the mortgage and so isn't all that motivated to take a loss on the loan, unless they're really convinced that but for the short sale the seller would go into foreclosure.
Even after the bank takes months to decide whether to approve the sale (and they often don't approve the sale at all), there's no guarantee that the bank will approve the agreed upon price. A seller can literally offer an unapproved short sale at any price they want. Often a seller will list a property at a price much lower than they know the bank will realistically approve, just to create demand and bring in buyers. The price isn't guaranteed until the bank says it's ok.
I was extremely fortunate to avoid these pitfalls in my short sale purchase. I had a great broker, and the seller also had a broker who knew what he was doing and pressured the bank to act quickly and approve the deal. The bank ultimately approved the deal in only 3 months, at a price just about what the seller was listing it for. But again, my experience is definitely atypical for a short sale.
All that said, if you aren't in a rush and are OK with the possibility that the bank may simply decide not to approve the sale, there's probably no downside to just taking a chance. Just recognize that that's what it is, a chance. I would make sure that you enlist a broker who is very familiar with short sales and has the experience to help pressure the bank to approve the sale. One other tip - if it's possible, make an all cash offer. The buyer is more likely to go with your offer over others, and the bank is more likely to approve it.
Even after the bank takes months to decide whether to approve the sale (and they often don't approve the sale at all), there's no guarantee that the bank will approve the agreed upon price. A seller can literally offer an unapproved short sale at any price they want. Often a seller will list a property at a price much lower than they know the bank will realistically approve, just to create demand and bring in buyers. The price isn't guaranteed until the bank says it's ok.
I was extremely fortunate to avoid these pitfalls in my short sale purchase. I had a great broker, and the seller also had a broker who knew what he was doing and pressured the bank to act quickly and approve the deal. The bank ultimately approved the deal in only 3 months, at a price just about what the seller was listing it for. But again, my experience is definitely atypical for a short sale.
All that said, if you aren't in a rush and are OK with the possibility that the bank may simply decide not to approve the sale, there's probably no downside to just taking a chance. Just recognize that that's what it is, a chance. I would make sure that you enlist a broker who is very familiar with short sales and has the experience to help pressure the bank to approve the sale. One other tip - if it's possible, make an all cash offer. The buyer is more likely to go with your offer over others, and the bank is more likely to approve it.
I've bid on two short sale properties (unapproved) in Chicago so far. In both cases my offer was accepted by the seller, but stalled for months waiting for the bank.
For the first condo, I decided I didn't actually want the property anymore after thinking about it for a few months, and the bank was taking so long to get back to me that I was able to walk away and get my deposit back. (My real estate attorney, specializing in short sales, put an extra clause in the contract about me being able to walk away if the bank didn't respond for 90 days... thank god!)
For the second multi-family property, after the seller had accepted my offer, but before the bank got back to me... someone came in at a higher price than mine. I had the opportunity to re-bid, but chose not to. I've been watching the property, and the short sale did end up going through, with them getting the place at their higher price. I think it was somewhat sketchy of the listing agent to continue accepting offers after my offer went to the bank... but in the end I didn't want the place that much anyway.
So for me it's been a lot of stress and excitement and worrying over nothing, but then again, I was *this* close to an amazing deal on that second property.
For the first condo, I decided I didn't actually want the property anymore after thinking about it for a few months, and the bank was taking so long to get back to me that I was able to walk away and get my deposit back. (My real estate attorney, specializing in short sales, put an extra clause in the contract about me being able to walk away if the bank didn't respond for 90 days... thank god!)
For the second multi-family property, after the seller had accepted my offer, but before the bank got back to me... someone came in at a higher price than mine. I had the opportunity to re-bid, but chose not to. I've been watching the property, and the short sale did end up going through, with them getting the place at their higher price. I think it was somewhat sketchy of the listing agent to continue accepting offers after my offer went to the bank... but in the end I didn't want the place that much anyway.
So for me it's been a lot of stress and excitement and worrying over nothing, but then again, I was *this* close to an amazing deal on that second property.