The Shortcomings of Real Estate Short Sales
A short sale occurs when the value of a home falls and the sellers are
not able to receive a sufficient amount of money from the sale of the
home in order to pay off the existing mortgage. In a short sale, the
lender may agree to take less than the amount that is owed to them.
While this may certainly seem as though the buyer is getting a good
deal, this is not always the case. In some small cases, a short sale may
prove to be profitable to buyers, there are some shortcomings of real
estate short
sales that you should definitely be on the lookout for.
One of the major drawbacks of choosing a home with a short sale is that
the sellers likely paid too much for the home in the first place. It
could also mean that the homeowner borrowed too much money. This tended
to happen in markets that were rapidly appreciating, resulting in the
buyer becoming over-mortgaged. This means that the balance of the loan
would exceed the value of the home. This could prove to be problematic
for you.
Also, it is entirely possible that while the home is listed as a short
sale it may not actually be eligible for a short sale. In some cases,
real estate agents that are either inexperienced or simply unethical
steer sellers toward a short sale when they do not actually qualify for
a short sale. In order to be approved for a short sale, the homeowners
must demonstrate that they have a hardship and must also submit evidence
of that hardship to their lender and be approved. Unfortunately, in some
instances, homes have been listed as short sales without the homeowners
actually going through that process or even talking to their lenders
about a possible short sale. If you place an offer on a home with a
short sale and it turns out that the home doesn't qualify the deal could
fall apart.
Also, you could find yourself in a situation whether the lender chooses
to hold out for a price that is higher. Lenders are usually perfectly
well aware of the value of the property. In fact, they may oftentimes
insist on having a comparative market analysis performed. If the lender
determines that they would be able to get a better price by taking the
property back through foreclosure than what they would be able to obtain
through a short-sale offer, then they may very well attempt to do that.
Another problem that you may run into is the home that is being sold 'as
is.' Many mortgage companies that actually agree to a short sale may
require the home to be purchased in its current condition. They may
refuse to pay for the following:
The length of time to close can also be problematic in some cases with
short sales. The back log of foreclosures from the bank as well as the
amount of paperwork required for the seller to submit can oftentimes
delay the transaction closure date. This could mean a delay of weeks or
even months in order to get a response to the purchase offer from the
lender. Also, in some cases, there could even be two lenders involved if
there were multiple loans attached to the property. This typically means
that it could take even longer.
The lender could also change the conditions of the short sale; even at
the last minute. In the event that the market should change or some new
information should become available, the lender may very well attempt to
change the terms of the purchase contract. At the very least, this can
be quite annoying and time consuming.
If you are working with a buyer's agent and you have agreed to pay a
certain buyer's commission, you may also find yourself liable for a
larger portion than expected. This is often due to the fact that many
lenders do not pay traditional commissions to agents; they often want a
discount. Due to the fact that the agents working a short sale often end
up doing more work, they typically do not appreciate a cut in their pay.
As a result, you may end up paying more money if your agent won't waive
the difference.
Finally, you may face higher than expected closing costs due to the fact
that the lenders may not be willing to pay for some of the fees that the
seller would ordinarily cover.
Keep in mind that while a real estate short sale may certainly seem attractive, in
the end you may face more costs than you bargained for.
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