Buying Short Sales: Dos and Don’ts
Do you want to profit from the real estate market? Now, it is a buyers market. Many borrowers are unable to afford their mortgages. This is often due to job loss, poor financial choices, and adjustable rate mortgages. Foreclosures are happening at a record rate. Unfortunately, foreclosure proceedings are not a walk in the park. They are lengthy and costly for mortgage lenders and embarrassing for mortgage borrowers. For that reason, many are now opting for short sales.
If you are new to buying real estate and want to profit from buying and reselling or buy a cheap first home, please continue reading on a for a helpful list of dos and don’ts for foreclosure short sales.
DO know what short sales are. You cannot profit from foreclosure short sales if you are unfamiliar with them. Short sales involve selling a property for less than the outstanding mortgage amount. For example, if a borrower owes $80,000 on the home, the lender may accept around $70,000 or less. In dire circumstances, the home’s original value may not even be considered. So, that $70,000 may buy you a $125,000 home.
DON’T just focus on foreclosures. First-time homebuyers and new investors make the mistake of focusing only on foreclosures. Yes, they are your best chance of getting a great deal. With that said, remember they are not a walk in the park. Foreclosure proceedings take months or even years. At foreclosure auctions, there is a lot of competition, which comes from experts in investing and real estate. Then, you may be left with home occupants who refuse to leave. Short sales eliminate this problem. Mortgage lenders and borrowers reach the decision together.
DO actively search for short sale properties. Unlike foreclosures, information on short sales will not just arrive at your doorstep. Short sale properties are sold either through lenders or professional real estate agents. It is easier to spot a lender sold foreclosure. Lenders are not real estate agents. They are either selling a short sale or a real estate owned (REO) property, either way you can get a good deal. Real estate agents may not outright state they are selling a short sale property, but they tend to drop hints. Look for low priced properties or listing with the phrases “lender approval needed,” or “pre foreclosure.”
DON’T fall victim to short sales for underwater homes. As previously stated, short sales involve selling a home for less than the outstanding mortgage due. This should result in a good deal, but not always. Due to depreciating home values, many borrowers are finding themselves underwater. This means they owe more than the home is worth. A typical short sale aims for less than the mortgage. With underwater homes, the selling price may be more than the home’s fair market value.
DO the research first. As previously mentioned, short sales for underwater homes aren’t a steal. In fact, you can lose money. To prevent this from happening, do the research first. In fact, real estate buyers should always research. The home’s last appraised value is public record. Find it. Remember, you want a good deal so make sure you are paying less.
DON’T wait forever. Some lenders drag their feet with short sales. This is often when a third party investor, such as Wall Street, is involved. Some buyers are on record as saying it takes months on end to receive a response to a purchase offer. Don’t wait. This increases your competition, which may drive up the price.
DO push for an answer. So, you made a purchase offer on a short sale property, but are still waiting for a lender response two months later. What should you do? Of course, you can give up, but push. Contact the lender directly or the real estate agent in charge of the sale. State you want the property, but are quickly losing interest. Plainly state you want an answer in two weeks or else you will withdraw your purchase offer and look elsewhere. This should do the trick. In fact, a response may come immediately.
In short, foreclosure short sales are good opportunity for first-time homeowners on a budget or first-time investors looking to turn a profit. Regardless of which type of buyer you are, do not discount short sales, but do the research first.
