Jeff’s Carlsbad Blog for First Time Home Buyers

What to Know about Buying a Short Sale

Posted in House Hunting,Short Sales,What do I Buy? by Jeff Dowler on June 6, 2007

In many part of the country, including here in Southern California, short sales are a significant part of the inventory in some communities. So it is likely you will come across them in your home search.

Buyers often have a keen interest in short sales because they appear to be good deals. After all, someone owes more than the house is worth and they NEED to sell…i.e., a distress sale.

There are some things to be aware of if you are considering buying such a home, or are in the midst of negotiating.

  • First, they are NOT necessarily a great deal. The bank will want to get as much money as they can, so the price they will approve will be based on market value. You will likely not buy a short sale for 10% less than any comps.
  • Second, there will be lots of competition. The asking price will normally be set low to encourage bidding, and there will be lots of other hungry buyers competing with you for the same home. I have heard of short sale homes with over a dozen offers.

Perhaps the biggest stumbling block is the timing. By that I mean actually getting the bank to approve the short sale and move the deal ahead. I hear repeatedly of situations where the bank has multiple offers but is not responding to the listing agent as to which offer, if any, they will accept. Oftentimes the agent cannot even get in touch with the appropriate person at the bank to find out the status of the offers they have received (typically 3 or more). I suspect some banks are better than others, and they know what they are doing in these situations, but the overwhelming majority of cases I have been involved in or heard about are very frustrating and some never reach conclusion.

So if you have lots of patience, and no urgency about buying, making an offer on a short sale might be right for you. Just understand that these deals are very unlike the traditional purchase. You might also consider continuing to look at other homes while your offer is being reviewed… if that is actually what is going on.

Read more on this subject in my previous post on buying a short sale.


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