Short Sale Tips for Home Buyers
- Adam Garrett
- May 13, 2024
- 4 min read
Updated: May 16
As distressed properties, short sales are one potential source of a "deal" in real estate. That said, they can also be quite a hassle.
Positives:
Lower Costs
As a distressed property (foreclosures and any other as is property are another kind of distressed property typically with less hassle than a short sale), the same house will typically sell for less than a non distressed property. My parents in law got a good deal on their short sale.
Better Chances Depending on Lender & if Seller is Working with Short Sale Attorney.
Short sales that are professionally negotiated by short sale attorney on the listing side have a higher likelihood of success. Ask me for a lender list with short sales with typical timelines as composed by a local short sale attorney specialist.
Short Sale Attorneys Can Help
It's typically a good idea with short sales to hire a short sale attorney who can assist you with getting from contract to closing.
Negatives:
1. As-is
Lender Approval Required
All terms subject to lender approval including but not limited to: CCA, price, termite inspection, etc.
No Seller Repairs
Seller typically will not personally pay for any items not covered by lender, those items not approved will be the buyer’s responsibility.
Most lenders will not approve termite repairs or appraisal repairs - makes it very tough for VA buyers. The lenders for the short sale will usually allow escrow holdback (Where the buyer has the funds to pay for any appraisal required or termite required repairs which are typically done within one to a few months after closing by the buyer's contractor)
Discount Margins Have Fallen
Because of the number of buyers who are now investors, And the heightened experience of banks with short sales, the margin of discount has reduced drastically for short sales, some say from 25% to 10%.
They Should be Called Long Sales
They typically take ninety days or more (sometimes years) to obtain approval (from receipt of offer). Often can take longer depending on type of loan and lender. Buyers should be prepared to close within thirty days of short sale approval. Sometimes the bank will only approve a higher purchase price than the asking price on the listing (I have seen >20% higher before). With a short sale you can be under contract for years without ever closing because of the nature of short sales. While miracles happen on occasion, expect a minimum closing time of 3 months, whereas most other normal properties require minimum closing time of between 30 and 45 days.
Fake List Prices Not Agreed to by Lender
The list price of a house is something that the bank may or may not have agreed to, so if the bank has not approved the price, you could be getting under contract at asking price and the bank comes back afterwards with you waiting for months and says that it has to go for tens of thousands of dollars more than the asking price and the contract price. I always like to ask if it's not in the listing if a short sale is listed for a bank approved price. Often the agent will not respond because the answer is "no." Even if the bank has agreed on the price, they could change their mind and say later that a property needs to go for a higher price after an expiration of an appraisal that can even occur after a property goes under contract with a buyer.
Short Sale Attorneys Typically Aren't Free
While their fees tend to be reasonable, short sale attorneys typically aren't free.
When Buyers Should Avoid Them
Buyer may be having a baby soon (3-5 month range)
A service member buyer that me be deployed soon
Buyers don’t have extra funds for repairs
Buyers are in a hurry to close and move in
Appraisal required repairs likely and buyer isn’t able (i.e. due to lender choice) to engage in escrow holdback.
Many buyers get frustrated by them
Related:
About the Author: Adam Garrett - 3rd Generation REALTOR®
Adam is the 3rd generation in a line of award-winning real estate agents serving SE VA. He has served full time at Garrett Realty Partners since May 2014 when he joined the marketing department before transitioning to full-time sales to assist buyers and sellers in February 2015. He believes that an educated buyer or seller makes the best decisions, & is dedicated to helping with that both digitally & on-site physically for buyers & sellers. He's also available for referrals to real estate agents around the globe. In several capacities, his resources & direct offerings for assisting sellers & assisting buyers are either unmatched or are top 1% for the SE VA area, and in some cases, nationwide. Not stopping after closing, he also provides information for tenants, landlords, & homeowners.
Related for Buyers:
Related for Sellers:
While Adam can refer buyers and sellers elsewhere, Adam’s direct coverage includes most of SE VA including Hampton Roads (VA Peninsula, Southside, & Middle Peninsula), the Northern Neck, & Greater Richmond.
Adam's Coverage Map with Adam's 5 Multiple Listing Services highlighted in orange & areas without good MLS coverage excluded:
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