What is a Short Sale? And How Do I Buy One?
At the Strazzullo Law Firm, our New York attorneys have helped many clients with various aspects of real estate law. Our years of experience put our clients on the right track to good decisions. One of the subjects we often represent is real estate short sale. We guide both buyers and sellers. Today’s article is a guide to buying a short sale.
A short sale refers to a house that is put up for sale for less than the homeowner owes on the mortgage. Usually, the homeowner is experiencing financial troubles and is trying to avoid foreclosure, or has defaulted on the loan.
Sometimes lenders approach homeowners who are behind on their mortgage payments, offering them relocation money and a potential preapproval for a short sale. The lender needs to make sure of the amount the house could sell for, so usually a BPO (best-price offer) analysis is ordered. When you offer the preapproved BPO amount to buy the house, the lender still needs to balance the amount that would be lost on the loan against the risk of continuing on into foreclosure.
Short sales may look like great deals, but an attractive price does not necessarily make all the difference. The seller may have overpaid to begin with, or the market may have significantly fallen, as the buyer you may also be responsible for significant costs outside of the selling price.
Things to Keep in Mind When Considering Purchasing a Short Sale
- When making an offer, remember that first offers are often the best. Because gaining bank approval is a long process, short sale sellers often approach the lender with the first offer received so as not to derail the process by bringing in an alternate offer. Also, keep in mind that lenders favor offers of at least 85% of the property’s appraised value, but in distressed markets, even 50% can sometimes be accepted.
- Lenders often offer the property in its present condition—“as is”—with no reductions for repair needs. Make sure that you have the property professionally inspected and are able to back out of the deal if you are not satisfied with the results.
- Short sales often take longer to be analyzed by the banks so you may end up waiting months to find out whether your offer has been accepted or rejected.