When the housing market collapsed 10 years ago, hundreds of thousands of homeowners discovered that their homes were worth less than the mortgage they had left to pay on the property. These so-called underwater properties were offered for sale by their owners at a price below their remaining mortgage in a transaction known as a short sale.
This past October, 1% of all home sales were short sales, or nearly 48,000 on a seasonally adjusted annual scale according to the National Association of Realtors. For sellers who owe $200,000 on a home now valued at $175,000 this is the last chance to cut their losses before going through foreclosure.
If you can find one of these properties that meets all (or most) of your requirements, you can save some real cash. The housing experts at Trulia have created a list of the things you need to know about short sales and what you, as a buyer, have to consider.
How does a short sale happen? When the appraised value of a home drops below the amount a homeowner has left to pay on the mortgage, the owner may choose to try to sell the home for the appraised value and take the loss in order to avoid foreclosure.
What has to happen to conclude a short sale? That’s pretty much up to the lender. If the mortgage holder accepts the suggested selling price and agrees to accept your offer, the process of buying a home first slows down as the lender decides whether to go along with the buyer and then speeds up as you try to close before the lender changes its mind.
Can a buyer negotiate the price? Generally, no. The price is negotiated between the lender and the seller and you have to pay that price. Note that the price is often offered “as is.”
What can a buyer do while waiting? Don’t get your hopes up and start planning how to redecorate the house. Keep looking because short sales often fall through.
Is a short sale usually cheaper than other homes in the neighborhood? Usually, but there is also a good chance that the owner has neglected a lot of routine maintenance and all of that is now your problem. The seller’s closing costs also may be added to the final price.
Where do buyers turn for help? Find an agent who gets good reviews and who has worked short sales before. Trulia also recommends finding a trusted inspector to get a thorough home inspection. Because the price is non-negotiable, buyers need to know exactly what they’re getting for their money.
What else is there to do before closing a short sale? Save more money either for the down payment or to make needed repairs and desired renovations.
For more details visit the Trulia website.