So a short sale just popped up in the neighborhood I was looking at and it is literally exactly what I was looking for. It's also listed at an almost ridiculous price (a solid 50k less than I would have guessed). Who knows if there is something majorly wrong with it, but at this point it is worth investigating further. Anything I should know? I will be calling my realtor tomorrow.
Trying not to get my hopes up but this has real potential.
Short sales can take an awfully long time to complete. Are you prepared for that?
Short sale as in the owners still live in the property, correct?
Don't be surprised to see that it takes 6 months or longer to complete.
As the post office sez "if it sounds too good to be true, it probably is".
There are so many things that could be driving the price that you need to be very careful. Also keep in mind that the lender has to approve the price & the sale. I've seen many of these places lowballing the offering price to get you hooked and then the lender raising the price.
If the sellers are not still in it then you have to worry about things being sold as-is where is and things disappearing before closing and fixing it will be on your dime.
Look carefully at what's wrong with the property. Sometimes that means financing isn't available.
carguy123 wrote: Short sale as in the owners still live in the property, correct? Don't be surprised to see that it takes 6 months or longer to complete. As the post office sez "if it sounds too good to be true, it probably is". There are so many things that could be driving the price that you need to be very careful. Also keep in mind that the lender has to approve the price & the sale. I've seen many of these places lowballing the offering price to get you hooked and then the lender raising the price. If the sellers are not still in it then you have to worry about things being sold as-is where is and things disappearing before closing and fixing it will be on your dime. Look carefully at what's wrong with the property. Sometimes that means financing isn't available.
Yep, all this. Also, if the current owners have a second mortgage on the property, both lenders have to approve the sale. This is not a foregone conclusion even if the first and the second are held by the same company.
That's not to say run screaming...but it is to say tread very carefully.
When I moved to Michigan, the first house we tried to buy was a short sale. 3 months into waiting it fell through due to title issues. We then tried to buy another short sale (in 2010 everything in MI seemed to be either a short sale or foreclosure) and after 3 1/2 months the short sale fell through because the owners had quit paying the mortgage and it went to foreclosure. Ended up finding a regular sale house. I was living in a hotel the whole time and my wife was still in Columbus so the waiting around was getting unbearable. Banks move SLOW! If you have time to burn there are good deals.
When we sold the house in Columbus it was a short sale due to it being worth less than half of what was owed. The people that bought it were investors and didnt have a problem waiting the 8 months it took for the sale to go through.
In summary- lotsa time=good deal. No time=big headache
Well I'm definitely not in a rush since my current pad is pretty nice and I only pay $200-300 a month for rent ( I have roommates). This house has a 2 car garage, renovated kitchen and is 1 house over from a community boat ramp which is great because I'm a boater. It looks like it needs some loving (I am assuming the A/C doesn't work because ever bedroom picture has a window unit) which is fine because I'm handy and don't mind the sweat equity. How does financing work for this? I am currently not preapproved and I haven't shopped around for financing yet so I am wondering if I need to rush into that.
Good part is if I had to, I could pay cash for 55% of it and probably get a loan from my parents for the rest.
Cash is king in these deals, if you can come up with it you're way ahead. Inspect the house closely, bring a friend to help point out faults. Are homes selling in this neighborhood? are there lots of listings? If you like it, get an offer in quick. Lowballing is a gamble. If houses are moving, don't go to low. Then again you have to think of repairs, etc. make sure to leave yourself with the cash to do that. Numbers, numbers, numbers.... If it is truly is a shortsale, then yes, it will take a long time to process everything. If its the house you want, it's worth it.
Have a pro do an inspection. My sister is trying to buy a bank owned property, my dad walked it, as well as her boyfriend who's in electrical/construction. I walked in a few days later by myself and saw things they missed, and sure enough when the inspection came back, the spots on the roof I had pointed out that just looked a little off from outside, were wet underneath. (i didn't get to go inside) just so you know what you're getting into.
http://www.searchlightcrusade.net/2011/06/why_buyers_should_avoid_short_1.html
When house hunting recently, I restricted myself to short sales and foreclosures. A full foreclosure will get done fast; all the paperwork has been done. The lenders have come to an agreement. The previous owners are out. The bank wants it off the books, the neighbors want someone in the house. All these contribute to a low price and a quick close.
My real estate agent cautioned against a short sale. Here's why: A short sale is a good bit different from a foreclosure, in fact this is usually the first stage of a foreclosure. In many cases, the current owner(s) have signed a document which gives the bank(s) the right to go after them for a deficiency judgment, meaning if the house sells for anything less than what they owe on it they are still on the hook. That means they are going to scream bloody murder and fight like cats in a sack about the lowball offers coming in, which goes double if there's a divorce involved (not uncommon). Since you need to include earnest money with an offer, that means until a release is signed you are tied up waiting on them to quit pissing and moaning and if something better comes along you can't make an offer.
If you are truly serious about the property, then when you make an offer put a time limit on it, say 30 days. As noted it needs to be a cash offer, cash is definitely king. Spell out EXACTLY what day you get your $ back if the deal doesn't close. Then stick to it. If the date gets close and you get a call etc saying 'we need X days' say 'nope, X date was agreed on and that's the only chance you get'. (Of course, if this comes from your bank and is in your favor, then by all means give them the extra time. 
)
OBTW: in both foreclosures and short sales you may find yourself bidding for the house. Again, if you are really serious, have a max number beforehand and bid less at the opening. Be prepared to bump up $1k at a time. Don't forget to assess the cost of repairs vs the actual value of the house when setting a max number. Mortgages with less than 20% loan to value ratio have private mortgage insurance tacked on and that crap is expensive, plus it only benefits the lender in a default, you are still screwed and can get hit with a deficiency judgment. Ex: if the house is valued at $100k then the max you want to borrow is $80k. BUT: if the house needs $15k in repairs you now want to keep your price around $65k, that way you can use some of the mortgage money to pay for repairs and not run afoul of the 8/20 rule.
The listed price often has no basis in reality. Realtors use it as bait to get people to make an offer.
That's something else my realtor said, too. Sometimes it's sad what you find; there's a short sale not far from me in a nice n'hood that I looked at and was pretty interested in. Turns our both a mother and daughter are on the mortgage, they had a big falling out, they both moved out of the house, neither is willing to bend, the house is sitting vacant and crumbling over their hardheadedness. The mortgage is WAY behind, like 4 years.
Thanks everyone, I was fully prepared and excited to jump into this, but my realtor said it went into contract 1 day after posted. The house is exactly what I was looking for so I think we are going to take a look just in case it falls through
MrJoshua wrote: The listed price often has no basis in reality. Realtors use it as bait to get people to make an offer.
This. In a short sale, the lenders have to approve the deal. So take a 300k house with 250k loan, there is nothing stopping the current owner from offering it "short" at 175k. You get someone on the hook, they envision the future, and the bank (3+ months later) says no deal and it's dead, or if you're lucky (???), counters at $250, and now that you've mentally mapped everything, you get to decide if you want to toss in another $75k.
Be very careful. When I was buying a house a couple years ago, it was sort of like used cars. If I didn't need it and it was a hobby and a game and I had the cash, then time didn't matter and I didn't get emotionally attached. But if I needed it this weekend, and it had to be right and the title able to immediately transfer, it was high quality CPO dealer stuff....... House the same way - if it's a game and it doesn't matter when/if the deal gets done and when you move then play the short sale game. If timing matters, buy a non-distressed home.
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