Everyone wants to get a deal when buying a piece of Real Estate. Being able to tell your family & friends when showing them your new house that not only is it great but you also got an awesome deal is a strong motivator for some buyers. Doing that in 2014 is tough at best, and really not worth it if you have to go through the short sale process to do it.
Buying a short sale makes sense in theory. Two big factors blow it up for most folks though. First is that the market is resonably efficient, everyone has the same data so houses pretty much sell for what they are worth. Second is the complete lack of control that you have as a buyer. These factors are involved in almost every transaction so finding one where they don’t apply or impact your ability to get a deal done is tough. It could be done but there are a ton of hurdles.
An efficient market always finds a balance for buyers and sellers. So if you are looking at a short sale, first and foremost, know that the current value is discounted due to the amount of to the existing loan(s)! It has nothing to do with market price. Since your seller likely has not made payments, they have not likely made repairs or done the needed maintenance on the home for awhile. Things like uncaulked tubs, worn out carpet, loose fences, bolts, interior doors etc. will all need to be fixed…by you! So you get a discount for that stuff relative to a finished and maintained home at market value. But you have to pay for the repairs and can quickly spend $10,000 brining a property up to speed that you saved $10,000 on. The property is not marked down relative to actual value just because it’s a short sale.
The second factor is that you give up control of the process. Accepting a short sale is between your seller and his or her lender(s). When you apply for a mortgage you are proving to your lender that you are good for the money. At the same time you are doing this (and not before) your seller has to apply and prove that they are no longer good for the money currently owed against the house. The current lender, or lenders if they have two liens, must agree to lose money. To do that it must be proven to them that this loss is the best loss. They could take three, four, sometimes ten months to do this. In the meantime you have invested, in addition to the time at least $1000 bucks in a home inspection, appraisal and other incidentals just getting your loan application in process. You could be approved and “ready to go” in 30 days but have to redo your entire mortgage application if it took 90 days to get approved. And oh by the way, we also have seen lenders agree after months and months of delays to take a short sale offer only to say “close in ten days or lose this approval”. They aren’t kidding about this. You may think you are helping them solve their problems and they should work with you. Think again, the lender is only worried about their losses and your seller is only worried about getting out. You are expected to wait.
The bottom line for the overwhelming majority of is that you won’t win big savings buying a short sale. Your best case scenario is a little bit of savings with a little bit of delay. But it could be far worse. If you can get preapproved for a mortgage in this market you can drive a hard bargain on a non short sale property. You can save the same little bit of money, with a good realtor and mortgage lender in your corner and skip a ton of headaches avoiding delays and repairs.
