The Pros and Cons of Purchasing a Short Sale Property
When shopping for a home and searching mls listings, you may come across some properties that are listed as short sales. These homes are tempting because they often sell for below market value. However, there are several potential downfalls to dealing with short sale properties as well. Here are the possible pros and cons of purchasing a short sale as well as a few helpful tips if you decide that this is the right choice for you.
What is a Short Sale?
A short sale is a home that isn't in foreclosure yet but might be soon because the seller has defaulted on their loan and is upside-down on their mortgage. In this type of sale, the mortgage lender becomes involved and has agreed to accept less than the amount owed on the mortgage. As a general rule, the mortgage must be in default and the home buyer can not have filed for bankruptcy in order to qualify for a short sale.
Pros of Buying a Short Sale Property
There are several benefits to buying a short sale. The biggest advantage is value. The mortgage company has already agreed to accept less than the balance of the loan and these homes often sell at a significant discount from market value. The home isn't yet in foreclosure, so you may be able to get some additional information from the owners about the home's history and upkeep, which you would rarely be able to determine with a bank-owned property. There are also many of these on the market. Of the nation's total homes in some form of active foreclosure, over a quarter are in pre-foreclosure status.
Cons of Short Sale Properties
Unfortunately, short sale properties have several drawbacks. The offer and sale agreement needs to be approved by the primary and secondary lenders as well as any lienholders, which could take weeks or even months. If you're in a hurry to buy a home, this route isn't a wise choice. You are also buying the property on an "as is" basis so will need to budget for repairs and any necessary upgrades. Finally, you may not receive some of the same closing cost incentives that are available with a conventional home sale.
Tips for Successfully Navigating a Short Sale Purchase
If you've decided that you want to search mls listings for short sales, there are several things you can do to increase your odds of success. Getting pre-approved for a mortgage is a good first step, as is having a large down payment on hand to show that you're serious. Short sale offers and contracts are known for being complicated affairs. If you wish to purchase a short sale, one of the best things you can do is to enlist the help of a real estate professional with short sale expertise.
When you see mls listings advertised as short sales, you now know the risks and rewards of these properties before you make a decision to investigate further. If you're caught in a seller's market, short sales might also be less competitive than conventional sales due to the additional red tape involved. To find all available options in your area, search properties here.