Short Sales—the Pros and the Cons

What is a short sale?
A short sale is the sale of a home for less money than the homeowner still owes on the mortgage. Short sales typically occur when the homeowner has fallen behind on the mortgage payments due to financial hardship. For the bank or lender that owns the mortgage, a short sale is preferable to letting a home go into foreclosure because they are recouping some of their loss.

But if short sales offer such a good deal, why isn’t everyone scouting them out? Because all that savings comes with a few compromises.

The pros of buying a short sale
Short sales typically mean good deals for buyers. Banks (and homeowners) want to find a motivated buyer as quickly as possible, so sometimes they’ll list the home at a low price to keep it from languishing on the market. 

There’s less competition from other buyers. Short sales can take a long time to finalize, and the emotional nature of home buying means that not everyone is willing to wait. Still, that means you’re less likely to get caught in a bidding war that can drive up the price, especially in a hot market.

It can be less risky than buying a foreclosure. In most cases, homeowners continue to occupy the home, and they’re not as likely to neglect or destroy the property before the sale is final, which can be the case with foreclosures. There’s also less opportunity for vandals to damage a home being continuously occupied.

The cons of buying a short sale
The process can be long and frustrating. Despite their name, short sales are rarely short. All the seller’s creditors will have to approve the offer, meaning escrow often drags on for months—with no guarantee the sale will be approved.

Sometimes it’s just not worth the wait. Just because a home is a short sale doesn’t mean the asking price is a fantastic deal. The lenders will try to recoup as much of their money as possible and will often set a competitive price. You have to take your time into account as well as your wallet and decide which is worth more to you. 

Short sale homes may require costly repairs. They often fall into disrepair because the owner can’t afford repairs or maintenance. In many cases, you can do a home inspection before committing to buying the property. But if major issues are discovered, there is no option to ask the bank for a concession or a lower sale price to cover these costs.

Realty Collective agent tip
You should strongly consider doing an inspection of a short sale home. If you decide to make an offer, find out if your contract gives you the option to back out of the purchase should the inspection reveal significant problems that you can’t afford to fix.

Can I buy a short sale home with Realty Collective?
Yes, Realty Collective agents can help you tour and purchase short sale properties. Instead of offering a commission refund based on the list price, as we do with a standard home purchase.Your agent can walk you through the process and ask the seller’s lender exactly where the process stands. That way you can gauge how long you’re likely to wait for the lender to make a decision about the sale and if it’s too long, you can move on.

Realty Collective agent tip
It can take up to a year for a short sale to go through, so even if you make an offer, keep exploring other homes for sale. You never know when your dream home will become available at the right price.

How do I know if a listing is a short sale?
Many search sites will now flag short sales and you can choose to opt into or out of this as a search criteria. In certain cases, we’re not able to flag a short sale listing, so you may not know a home you’re interested in is a short sale. However, when you schedule a tour to see a home or submit an offer, we’ll confirm the home you’re interested in is not a short sale.

Want to learn more about short sales and chat about if this process is right for your search? Get in touch!


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