Purchasing a new home can be tricky, particularly if the home you’re interested in is a short sale or in pre-foreclosure.  In this case, the seller is having a difficulty in keeping up with the mortgage and striving to reach a deal, hoping to avoid foreclosure.

Considering the purchase of a short sale may be an excellent opportunity to purchase a home at a sweet steal of a price. Homebuyers may rely on a discount when purchasing a short sale but this can be an expensive misconception.

Let’s say, if a homebuyer only considers purchasing a short sale because of its low cost, then they might find themselves swamped with issues in closing a short sale. With the increasing volume of homes being included on short sale lists annually, it’s evidently a struggle for many to score a fair deal.

For example, a buyer spotted a potential short sale home on the market, and was immediately attracted with the advertised price.  Buyers should be aware that not all homes listed as short sales will sell at the advertised price. Most of the homes listed are still subject to the lender’s approval.  There may be a second mortgage on the home, which would then involve getting both of the lender’s approval.  Due to this and other factors, in various real estate markets, less than 1 in 10 short sales successfully close.

Here are the items that all homebuyers need to know before purchasing a short sale home:

Seller Qualifications

Do your research.  Ask your realtor to find out if the listing agent has already received a completed short sale package from the seller. Also keep in mind to ask if the sale has already been approved by the lender(s).   You may not get an answer, and if you do, circumstances can always change.  The lender will consider each offer as it is presented.

Each lender has different requirements but a short sale package will typically consist of a seller’s hardship letter, tax returns, paystubs, financial and bank statements.  These items are then reviewed and considered when determining if a short sale will be approved.

Be aware that some sellers don’t want to cooperate and are slow to remit these documents. Unfortunately, some agents fail to inform the seller that all of these documents are required.  To avoid any delays, buyer’s agent should try to confirm that the listing agent has received and submitted all the required documents.

 Number of Loans, Mortgage Amount and Lenders

Buyers have the right to ask their agent to research and try to determine how much is owed and the number of loans recorded.

Some lenders get a reputation for being difficult to work with. An experienced short sale agent will know who these lenders are and will advise you of the possible difficulty you might encounter in your particular case.

If your agent is able to obtain this information, you should then consider the amount owed when making your offer. The lender can counter offer and will likely reject an offer for an amount that is considerably less than the outstanding balance.

Short Sale Offers

Please note that the listing price of a home is set by the listing agent and not by the lender.  Sometimes this price is set below market value with the intent to elicit multiple offers.   While this may seem like a great opportunity, beware that the bank is not likely to accept these low offers.  To ensure that your offer is seriously considered, it should be near the market value. You should consider going in with your strongest offer, as the bank is not required to alert the potential buyers or give them a chance to increase their offer amount.

Short Sale Procedures of the Listing Agent

REALTORS are required by the REALTOR Code of Ethics to treat everybody equally and just. This means, in part, that a short sale listing agent must submit all offers to the seller as they are received.  A seller is entitled to continue to receive all offers submitted prior to accepting one of these offers. Keep in mind that even if your current offer is submitted to the bank, and your short sale for approval is still on queue, another buyer can outbid you. Inform the seller if you are ready and willing to raise your price, if necessary.  Again, the bank is not required to alert the potential buyers or give them a chance to increase their offer amount.

Track Record of the Short Sale Listing Agent

Be cautious when dealing with an inexperienced listing agent who advertises a short sale but has never successfully closed one.  It is the responsibility of the listing agent to complete and submit the sale package to the lender and to negotiate an agreement of terms. It’s highly advisable to patronize agents who have records of successfully closing short sales.

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Do you have general real estate requests or need a Realtor to represent you in South Lyon, Novi, Farmington Hills, Livonia, Northville, Plymouth, or in any other surrounding Oakland County area? Feel free to contact me.