In this tough real estate market, the number of distressed homes has increased dramatically. I’ve written previously about the different types of distressed properties, which include pre-foreclosure, short sale, trustee sale and bank-owned properties.
One of the property types that we are seeing more of these days is a “short sale”. Stated simply, a short sale is a property where the owner owes more on their mortgage than their property is worth. In order to sell the property, the owner seeks approval from their bank to sell the property for less than they are owed. Banks will sometimes be willing to do this to prevent the property from going to foreclosure, but the process can be slow, bureaucratic and frustrating.
Chances of successfully buying a short sale are low. Our local competitor Redfin has a strict policy of not offering tours or writing offers on short sales. Our brokerage takes a different view of short sales. findwell will happily include short sale properties in our tours for the Puget Sound area. We will, however, offer some strong guidance if you choose to make an offer on a short sale property. If it’s the right home and your family has the luxury to wait, sometimes a short sale will make sense, but you need to understand the risks.
- Closing dates may be delayed – Some banks may respond in a week or two, while others may take 4-6 weeks to respond. A normal closing takes 30-45 days. A short sale could take anywhere from 1-6 months to close, and it is difficult to gauge accurately.
- Your offer is rejected – It is not unusual for a bank to receive multiple offers. If they have two or more offers, they will likely pick the best one. There won’t be negotiation and it may take you six weeks after your offer to figure out that it has been rejected.
- Multiple lien holders – The riskiest short sale is one where there are two different mortgage holders. Basically the two of them have to agree on the losses that they are taking, which is a time consuming and often fruitless process.
- There is nothing you can do to speed things up – The process is bureaucratic, and often your agent is powerless to make things move faster. Speaking to the decision maker is difficult or impossible, and you’re simply forced to wait your turn.
- Is it really a good deal? – Just because a bank is willing to lose money on their mortgage does not make the home a “great deal”. I have seen just as many great deals on homes that are not in distress. The only way to know if a house is a great deal is to research the local market. Don’t restrict your searches to short sales, otherwise you will miss other deals.
- Other fees and costs – There may be unplanned expenses for buyers. Sellers are likely not willing to pay for utilities to be reconnected and are not likely to take care of required repairs. In addition, your buyer’s agent commissions may get reduced by the bank, which may alter the fees or rebates from your real estate agent.
If you are looking for homes in the Seattle area and have been rejected by for a tour because of Redfin’s short sale policy, give us a call. We’re happy to include them on your home tour and will offer our expertise if you decide to write an offer.