A "short sale" is when a homeowner sells a house for considerably less than its market value. Homeowners choose this option for a number of reasons. Sometimes, they're avoiding foreclosure. Other times, they're deeply in debt and want to rid themselves of their mortgage. Many times, they owe more on the mortgage than the home is worth.
A short sale may seem like a great deal to a potential buyer. However, it's essential to understand how short sale listings work before you look seriously at one of these properties.
First, it's wise to find out if there is a foreclosure notice on the home as well as how much the homeowner owes the lender. This information, which is public record, can help you determine what kind of offer to make.
The lender that holds the mortgage doesn't have to accept an offer on a home just because the seller does. A lender isn't going to accept an unreasonably low offer. If the homeowner has two mortgages on the home from different lenders, they'll both need to accept the offer. The seller will need to pay the lender(s) the difference between the sale price and what they still owe on the home unless they can provide a hardship letter.
It's important to have real estate agents involved who have handled short sales before. At least one of the agents (the seller's agent or yours) should have experience with short sale properties. It's best if both do.
The seller's lender will want proof that your own mortgage loan has been preapproved. They may take some time to review your documentation and decide whether to accept your offer. Short sales take longer than typical real estate sales to close. Don't expect the sale to close within 30 days. It can take months.
Home inspections are a crucial part of any home purchase. However, with a short sale, it's particularly important for a qualified inspector to look at the home. The buyer can expect to pay for this, as the lender likely isn't going to foot the bill.
It's essential to know what to expect if you're considering purchasing a short sale property. In addition to having a real estate agent who's experienced in short sales, it may be wise to have an experienced attorney on your side to review the agreements and protect your rights and interests.