1) When the Odds Are 50/50, They Aren’t In Your Favor
That’s right; roughly half of listed short sales never close. Many end up in loan modification and the seller stays, or in foreclosure and the seller goes. Either way, the buyer gets the “short” end of the stick. As a lifelong baseball fan, batting .500 is a tremendous feat, but in real estate not so much.
2) High Risk, Low Reward
Since the seller’s lender will not discuss a short sale with the seller until they have an actual contract with a buyer, many short sales are listed at unrealistically low prices, enticing would be buyers just to get a purchase contract. They do this knowing that the seller’s lender is unlikely to accept it, but at least it will get the process started. Listing agents who do this try to justify it because even though it may be wasting the time of several different home buyers, it is potentially in the best interest of their client, the seller. Inspection and appraisal fees can be wasted and earnest money at risk if the deal never closes, all for what usually amounts to a few percent lower than market value.
Only the seller is bound by a contract, not their lender, even though the lender has to approve the short sale before the transaction can take place. That said, the lender can and often does change the rules in the middle of the game. Approvals are frequently not in writing and last minute counteroffers when a buyer thinks closing is imminent at a given price are not uncommon. Undisclosed tax liens, unpaid HOA fees and the presence of a second lender wanting to minimize their losses just add to the list of potential pitfalls for a short sale buyer. A foreclosure sale can even derail things at this point!
4) They Can Take “Forever” To Get Done
More than one client has told me “These things should be called ‘long sales!’ ” Many short sales, if they eventually consummate, can be measured in months and half a year or more is not unheard of. The numerous fits and starts along with promises of fast responses can lead a buyer on an emotional rollercoaster they wish they never signed up for. In a scenario of rising mortgage rates like we are currently seeing, any potential savings on price can be eaten away in higher interest costs.
5) Deferred Maintenance
Since short sales sellers are in financial difficulty and seek to move, it’s common for home maintenance to be a low priority or not economically feasible. Inspections are normally performed after the lender’s approval of the short sale. If the buyer’s lender requires repairs in order to issue the loan the question becomes “who pays for it?” If the seller’s lender refuses to pay for repairs it will fall on the buyer to do so. Paying for repairs on a home that has a 50% chance of not closing isn’t a good position to be in.
For those Salisbury MD buyers still willing to take the plunge into a short sale; you’ll need a plan to protect yourself-
- Think it through. If you have a short timeframe for buying or need a predictable purchase process, short sales are probably not for you.
- Work with a competent and loyal agent who is familiar with short sales on the buying end. This can make a huge difference when considering the purchase of a short sale. You need someone who will work in your best interests and help you objectively evaluate the risk vs. the potential reward.
- Ensure contract provisions are in place that will allow you to escape the transaction if the seller’s lender is too slow or unresponsive.
- Have contract terms that require the release of your Earnest Money Deposit back to you without the seller’s approval if the home goes into foreclosure.
- Have your contract contingency timeline start when the seller’s lender approves the short sale.
- Thoroughly look at the home and consider having a licensed contractor or home inspector check it over before you start any negotiations on a short sale.
Contact me today if you have a question on short sales or the short sale process.