What Every Buyer Should Know Before Buying a Short Sale Property
Short sales are a dime a dozen on the Multiple Listing Service (MLS). In fact, if you are an avid home buyer or house hunter, you might already know and understand that when a property listing says subject to bank approval or subject to lien holder approval i.e. some other entity has to approve the sale price and terms first before the sale can proceed to closing, you are more than likely looking at a short sale listing.
Some real estate agents give mixed reviews when it comes to buying a short sale listing. I was one of those real estate agents who did not want to expose my clients to short sale listings because I know how difficult they can be. But, if you understand what risks are involved with buying a short sale, you are way ahead of the game. In fact, one primary reason to buy a short sale home is so that you can secure a great discount on the sales price of the home.
Let’s review a couple of key terms before we get into what you need to know about buying a short sale property.
What is a short sale?
A short sale is a term used to describe a real estate transaction where the title to a property transfers and where the sale price of the property is insufficient to pay for the total of all liens and costs associated with the sale. It’s a case where the seller does not bring sufficient liquid assets to the closing table to cure all deficiencies i.e. liens against the property.
Before you get involved with buying a short sale property, you should ask yourself:
- Am I willing to wait 60-180 days (or 3 to 6 months) for 3rd party approval?
- Am I willing to suspend my home search and commit to a short sale real estate transaction for at least the minimum length of time described above?
- Am I willing to invest in a home inspection, hire a real estate attorney to review the real estate contract even before 3rd party approval is granted, and possibly even pay for mortgage loan application and appraisal fee?
- Am I willing to make home repairs per the township’s certificate of occupancy guidelines or my lender’s loan requirements prior to closing?
- Am I willing to bring sufficient funds to closing to cure all of the property title’s deficiencies? Sometimes, this means chipping in for the owner’s outstanding water bill or other outstanding utilities like deliquent association fees?
If you answered yes to all of the questions above, you are by my standards deemed fit to buy a short sale listng. If you hesitated, you may not have the stomach to proceed with a short sale transaction. Some discounts are not worth all of the hassle.
Of course, if you answered yes to all or most of the questions, then by all means start your home search with us. Use either our basic search or advance search options on Njretoday. Or better yet, create an account using your email address to save the homes that interests you. Your saved property searches will let me know which homes to schedule for you in the event you want to see a home in person.
Next, after searching for short sale listings on Njretoday and once you place an offer on a short sale you should ask your agent (hopefully me as your short sale specialist) to inquire about the status of the short sale in addition to uncovering the seller’s selling situation.
Generally an informed short sale buyer should have their real estate agent inquire about:
- What is the seller’s hardship? Most short sale sellers apply for a short sale because of 5 common situations: Divorce, Death of a family member, sickness or illness, loss of income/employment, over-extension of credit or expenses.
- Is the seller currently in default and by how many months? There is a common misconception that a homeowner has to be behind on his or her mortgage before applying for a short sale. Some lenders participate in a pre-foreclosure short sale program where the seller makes reduced mortgage payments and maintains the property, insurance and taxes while the property is being offer under short sale conditions. In this situation, the homeowner cooperates in the short sale liquidation process with the lender for a speedy short sale proceeding. This option is generally reserved for owner occupied short sale homeowners.
- Has the owner attempted to apply for loan modification? If an owner has been denied for a loan modification, generally a short sale will be approved, but that does not mean a denial of loan modification is na condition for a short sale be approved and/or considered.
- How many lien holders on are the property?
- Who are the lien holders?
- Is it the seller’s primary residence?
- Is the seller aware of short sale consequences?
- Will the seller cooperate in his/her liquidation process?
- Will the seller maintain the residence and deliver it vacant of his/her personal belongs and/or tenants prior to closing? If there are tenants in the home, you may be responsible for their eviction. If you intend to occupy the home and its a single family home where the homeowner does not or can not evict the tenants, you may have trouble buying the home owner occupied.
- Will the seller provide for (pay for) the certificate of occupancy/smoke certification application fees prior to closing?
- Who is negotiating the short sale on the seller’s behalf? Is it the seller’s real estate attorney, listing agent or another party?
- Have there been any offers on the home?
- Is there an approved short sale selling (not listing price)?
Other Common Short Sale Buying Questions
- Many home buyers often ask me if they can buy their relative’s short sale listing.
Most short sales lien holders will require the seller and all parties involved in the real estate transaction (including the real estate agents) to sign an arm’s length AFFIDAVIT, which is meant to affirm that none of the parties to the contract are family members, business associates, or share a business interest with the mortgagees. It is meant to further affirm that there are no hidden terms or special understandings between the seller or buyer or their agents or Mortgagee. The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transaction. None of the parties shall receive any proceeds from this transaction except the sales commission.
Post By Audeliz Angie Perez (160 Posts)
Angie Perez is a NJ Circle of Excellence award winning real estate agent for Weichert, Realtors in Edison. She sells anywhere from 12-25 houses per year on a consistent basis since 2005. Ms. Perez is primarily a buyer's agent on 60% of her real estate sales where she represents rental income investors, first time home buyers & trade up home buyers of 1-4 family homes within specific towns encompassing 4 NJ counties: Union, Essex, Middlesex and Somerset County. Many of Ms. Perez's clients appreciate her ability to negotiate favorable real estate deals for them. Many of her clients commented that her research abilities, her honesty, her knowledge of local market trends and her proficiency to manage multiple real estate transactions from start to close are some of the reasons why she was hired as their agent of choice. Please call, text or email Angie Perez to ask if she lists or sell in your town. If she can not help you, Ms. Perez would be more than happy to help or refer you to someone who can.
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