What Is A Short Sale
A short sale is the sale of a home for less than the homeowner owes on the mortgage. A short sale typically occurs when the homeowner has fallen behind on the mortgage payments due to financial hardship. For the bank or other lender that owns the mortgage, a short sale is preferable to letting a home go into foreclosure. A short sale home can be a good opportunity for some buyers, but also presents challenges.
The Pros Of Buying A Short Sale
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You could get a good deal. Banks (and homeowners) are motivated to find a buyer for a short sale as soon as possible, so sometimes they’ll list the home at a low price to keep it from languishing on the market.
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There’s less competition. Short sales take a while to finalize, and many buyers aren’t willing to wait. That means you're less likely to get caught in a bidding war that can drive up the price, especially in a hot market.
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It can be less risky than buying a foreclosure. In most cases, homeowners continue to occupy the home, and they're not as likely to neglect or destroy the property before the sale is final, which can be the case with foreclosures. There’s also less opportunity for vandals to damage the home.
The Cons Of Buying A Short Sale
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The process can be long and frustrating. Despite their name, short sales are usually not short. Because all the seller's creditors have to approve the offer, escrow often drags on for months—with no guarantee the sale will be approved.
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Sometimes it’s not worth the wait. Just because a home is a short sale doesn't mean the asking price is a fantastic deal. The lenders will try to recoup as much of their money as possible and will often set a competitive price.
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The home may require costly repairs. Some short sale homes fall into disrepair because the owner can’t afford repairs or maintenance. In many cases, you can do a home inspection before committing to buying the property. But if major issues are discovered, there is no option to ask the bank for a concession or a lower sale price to cover these costs.
Short Sale vs. Foreclosure
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Short sales are initiated by the homeowner in order to get out of a mortgage and avoid foreclosure, usually, after homeowners have missed payments or are delinquent on mortgage payments and owe more than the home is worth.
A short sale can have less of an impact on your credit than a foreclosure, which is typically initiated by a lender against a delinquent borrower.
Are Short Sale Home Prices Negotiable?
Yes, short sale home prices are negotiable. The short sale bank or mortgage lender is the one who decides on whether the offer presented to them is acceptable or not. Negotiable items on the home can include the price and closing costs, among other things.
Potential short sale home buyers have to remember that, while the seller may accept your offer, it does not mean the lender will approve it. Sellers are motivated to sell in this type of situation but lenders will want to evaluate the offer and gather any relevant information they feel is needed to make a good decision.