Short sales are a large part of our real estate inventory and as a buyer you need to be familiar with them. Let’s say a seller owes $500,000 on their home and they need to sell it. Since values have declined over the past couple of years, so now the property is only worth $350,000. The seller will try to put the home on the market and ask the bank to sell it short at the new market value. The term short sale is simply because the lender would have to accept the short amount that is owed in order to sale the property.
There are many negative to buying a short sale. First of all they can take anywhere from 2 weeks to 6 months for the bank even to respond to your offer. After that long period the bank can simply say no we are not going to sale it for that amount. The list price is really irrelevant because the bank is not involved in that process, the listing agent is. Once the seller receives an offer they submit it to the bank, along with all of there financial information and a hardship letter. The bank will order an appraisal to be completed for the property. Then the bank will calculate all their financial options and then respond.
If you get the bank to approve the short sale then you start your investigation process of the property. The seller will still complete all disclosures for the property for your review. Although what recourse will a buyer have if the seller does not answer the questions honestly? The seller is liable for one year after the close of escrow. Remember the seller is selling the home because they have no money, how can you go after someone that has no money. Disclosures are huge part of the transaction and you will need to perform a lot of your own research.
The positives for buying a short sale is there can be some really good deals out there. If a buyer is patient and is willing to wait for the bank to approve the purchase price there can be some exceptional deals. Just understand your risks and do all the research possible!