With so many homeowners trying to sell their properties before they get foreclosed on, buyers can find great deals on houses headed for default. A short sale not only removes the financial burden from the previous owners, they also allow buyers to avoid some of the entanglements of a foreclosed property – e.g., evicting the prior owner or a prior tenant or the possibility that the previous owners will gut the home.
In short, a short sale is preferable to a foreclosure – even though you may pay a bit more than you would at auction. Here are a few tips for finding the best deals when you opt to purchase a short sale property.
1. Use a realtor
Although a short sale can seem like a great deal, there may be reasons that you don’t want to buy. A real estate agent can uncover this information for you. For example, they can find out if the property is going into foreclosure, too many liens against the property etc.
You also need to know if there is a second mortgage on the home since, even if the homeowner and the original lender sign off on the sale, you may have to deal with the secondary lender as well. It pays to make sure your agent has experience with short sales to ensure that you don’t get the short end of the stick.
2. Don’t buy “as is”
Many homeowners offering short sales do so with an “as is” caveat. Don’t buy into a situation where damage and pre-existing problems become your sole responsibility, as your “cheap” property could be turn into a money pit.
Banks may be open to reducing the price if there is significant damage to the home. Have a contractor look at the property and give you an estimate to forward to the bank. Bring your insurance agent out to make sure the home is insurable. You shouldn’t purchase a property if the seller won’t let you have it inspected.
3. Be prepared to wait
Buying a home that is close to foreclosure in a market in which home values have dropped significantly is not as easy as you might think. For starters, even if the homeowner accepts your bid, the bank that holds title may not. This could lead to weeks or months of negotiation before you come to common ground.
4. Never give cash
Any seller who asks you for cash or other payment up front is committing fraud. Since a short sale means that you are buying the house for less than what is owed to the bank, the homeowner will come out of the deal with no money. If demands for payment seem fishy, they probably are, so don’t fall prey to this common scheme.
5. Deal with the lender
Once the homeowner agrees to your purchase price and signs off on it, all further dealings will be conducted with the lender. They will also have to approve the terms of your offer and then you will pay them, not the homeowner, for title to the property.