Thursday, February 14, 2008
Placing a Bid on a Short Sale
Placing a Bid On a Short Sale, By June Fletcher, Wall Street Journal, 14 Feb 08
Question: My husband and I are first-time home buyers and found a beautiful house being sold as a short sale. It almost seems too good to be true, and our real estate agent referred to short sales as playing a 'game of roulette'. Are the risks and time involved with a short sale too much for us to handle as first time buyers? -- Christine Pellum, Chicago
Christine: A lot of things in life are risky and scary the first time you do them, like going skiing, dancing in public and playing the stock market. But that doesn't mean you shouldn't try.
Notice that I didn't put falling in love on this list, since that's what you shouldn't do with this house. A short sale, which involves buying a house for less than the amount the seller owes the lender, can be time-consuming, frustrating, and --- if the lender refuses your offer -- ultimately unsuccessful. But if it works, you could be getting a very good deal.
Short sales also require some sophistication, skill and patience on the part of a real estate agent, so keep that in mind, if you decide to bid on this house. If the agent you've been using doesn't want to get involved, ask him or her to refer you to someone who specializes in this sort of work.
You also need to hire an attorney experienced in this kind of transaction. [not necessarily true in AZ.]
A short sale usually occurs when a seller can't make his loan payments because of death, divorce, job loss or other hardship. When homes are rising in value, owners can sell the house and pay back the lender. But when home values are dropping, as they are in many places today, and the owner hasn't built up much equity, that's not an option. So some lenders will accept less than the amount owed to avoid the hassle and expense of auctioning the house, providing the owner proves that he doesn't have other assets to make up what he owes.
Even with experienced people at your side, it pays to arm yourself with facts before you make an offer. Don't assume that the house is a bargain, since the owner may have bought the house at the peak of the housing cycle and may owe so much that he can only discount it to current market prices. Find out what comparable houses are selling for, whether a foreclosure notice has been filed for the property, who owns the loan or loans, and how much is owed -- you'll have to deal with them all.
The seller may eagerly accept your offer, but he isn't the final arbiter of the deal -- the note holders are. So make your offer contingent on the acceptance of the lender or lenders. Since the lenders want to know that you can back up your offer, include as much information as you can on your financial resources, as well as a preapproval letter from a lender.
Although the property may be advertised as-is, make sure the deal gives you the right to have and approve home and pest inspections by qualified professionals. Short sellers usually have given up maintaining and repairing their homes; you need to know what other expenses to expect.
Also, place a time limit on your offer -- ask your agent what is customary in your area --since lenders will sometimes drag their feet, hoping to get a better deal. Short sales rarely take a short time to complete, but you shouldn't have to wait around forever.
Question: My husband and I are first-time home buyers and found a beautiful house being sold as a short sale. It almost seems too good to be true, and our real estate agent referred to short sales as playing a 'game of roulette'. Are the risks and time involved with a short sale too much for us to handle as first time buyers? -- Christine Pellum, Chicago
Christine: A lot of things in life are risky and scary the first time you do them, like going skiing, dancing in public and playing the stock market. But that doesn't mean you shouldn't try.
Notice that I didn't put falling in love on this list, since that's what you shouldn't do with this house. A short sale, which involves buying a house for less than the amount the seller owes the lender, can be time-consuming, frustrating, and --- if the lender refuses your offer -- ultimately unsuccessful. But if it works, you could be getting a very good deal.
Short sales also require some sophistication, skill and patience on the part of a real estate agent, so keep that in mind, if you decide to bid on this house. If the agent you've been using doesn't want to get involved, ask him or her to refer you to someone who specializes in this sort of work.
You also need to hire an attorney experienced in this kind of transaction. [not necessarily true in AZ.]
A short sale usually occurs when a seller can't make his loan payments because of death, divorce, job loss or other hardship. When homes are rising in value, owners can sell the house and pay back the lender. But when home values are dropping, as they are in many places today, and the owner hasn't built up much equity, that's not an option. So some lenders will accept less than the amount owed to avoid the hassle and expense of auctioning the house, providing the owner proves that he doesn't have other assets to make up what he owes.
Even with experienced people at your side, it pays to arm yourself with facts before you make an offer. Don't assume that the house is a bargain, since the owner may have bought the house at the peak of the housing cycle and may owe so much that he can only discount it to current market prices. Find out what comparable houses are selling for, whether a foreclosure notice has been filed for the property, who owns the loan or loans, and how much is owed -- you'll have to deal with them all.
The seller may eagerly accept your offer, but he isn't the final arbiter of the deal -- the note holders are. So make your offer contingent on the acceptance of the lender or lenders. Since the lenders want to know that you can back up your offer, include as much information as you can on your financial resources, as well as a preapproval letter from a lender.
Although the property may be advertised as-is, make sure the deal gives you the right to have and approve home and pest inspections by qualified professionals. Short sellers usually have given up maintaining and repairing their homes; you need to know what other expenses to expect.
Also, place a time limit on your offer -- ask your agent what is customary in your area --since lenders will sometimes drag their feet, hoping to get a better deal. Short sales rarely take a short time to complete, but you shouldn't have to wait around forever.
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