Hi I’m John McGeough of McGeough Lamacchia Realty
In this video we are going to talk about buying a Short Sale.
In today’s market Short Sales are becoming more and more popular by the day. 3-4 years ago there was less than a thousand Short Sales on the market in Massachusetts and now there are over 3,000 at any given time. We have found that many buyers simply do not understand exactly what a Short Sale is. So let’s start with that.
A Short Sale is when a property is sold by its owner for less than what is owed on the mortgage. Notice how I said “by its owner”. Many people seem to get confused into thinking a property that is being sold as a short sale is owned by the bank. That is not true anytime you see short sale, always remember that the property is owned by a homeowner who simply owes more on the mortgage than the property is worth. Buying a Short Sale should not scare you at all as long as you are aware of the one difference between a short sale and a regular sale. A Short Sale needs approval by the seller’s lender in order to accept less than what is owed on the mortgage. That is the only difference but it is an important one.
When buying a short sale it is especially important to have a good buyer’s agent representing you. If you hire a good agent who has experience selling homes in today’s market they will know what questions to ask the listing agent to help you decide if you want to buy a Short Sale.
When you make an offer on a Short Sale remember you are negotiating with the home seller and NOT the bank. The offer will be “subject to bank approval”. So the seller will be accepting or rejecting your offer. The right agent will also know how to properly structure your offer. For example anytime you make an offer on a short sale you have to expect that it will take at least a month for Short Sale approval to be obtained. But you cannot allow an unlimited amount of time in your offer. There must be a deadline to how long you will wait for Short Sale approval. We recommend allowing 90 days for approval. Many agents and buyers do not realize that if your offer simply says subject to bank approval that leaves you bound to that house for an unlimited amount of time. Therefore a deadline is a must.
When deciding how much to offer you need to treat it like any other home for sale. Your agent will look up what is for sale in the area and recent sold properties in the area. This is the best way to figure out what is the right offer amount. One major misconception out there is that you can buy short sale at a substantial discount from what the home is actually worth. This is simply not true. Yes Short Sales do typically sell for a small discount but they do not sell for huge discounts. When the offer is submitted to the bank the bank is going to do their own appraisal to be sure they are getting at or close to market value for the property. If their appraisal tells them they are not obtaining market value with your offer they will deny it. So do not bother making very low offers on Short Sales unless your analysis on other properties in the area clearly shows that it is worth much less.
One sign of a good Short Sale listing agent is one that requires buyers to conduct their home inspection within 5-7 days of the offer being executed and prior to it being sent to the bank. There are many real estate agents and buyers out there who do not understand why they should spend money on a home inspection prior to their offer being approved by the bank. This is a great question to ask but there is overwhelming good reason to do it before. The biggest reason is a seller who is doing a Short Sale is usually under financial stress with their bank pressuring them to pay their mortgage, or sell the property or they will get foreclosed on. Therefore there is no time to waste with a buyer who is not 100% sure that they want the home. Once a Short Sale is approved by the seller’s lender the buyer usually has 30-45 days to buy the home. That leaves no time for a home inspection, possible re-negotiation and certainly would be a horrible time to have a buyer back out of buying a home due to something being found on the home inspection that scares the buyer away.
As you can see buying a short sale is very much like any other real estate transaction…. the only difference is the one added step of getting the bank’s approval. A Short Sale is not for someone who has to move in a certain timeframe due to a lease expiring or some other reason. But if you are a buyer who can wait a couple of extra months the money you save can be well worth the wait.
Hopefully this video answered most of your questions, and helped you better understand that buying a short sale is really not too much different than buying any other home for sale.
That is all for “Buying a Short Sale” thanks very much for watching!
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