3 Reasons to Avoid Short Sales

Short sales are real estate sales that occur when the borrower can no longer pay his or her mortgage and the lender decides that it's better to sell it at a loss than to try to pressure the buyer into repaying the debts. At the first glance, buying a home sold on a short sale will seem like a great deal--you pay less than you would otherwise have to, and if you can afford to hold on to the property for at least a decade, you may be able to earn significant profit once the real estate values rise. However, short sales do have several downsides that are worth keeping in mind as you decide whether you want to buy a home at a short sale or not.

Lender  Stalling and Pressuring

When lenders agree to a short sale, they accept the fact that they will sell at a loss. However, in most cases, they will still try to make as much money as they possibly can. Because of this, lenders may hold off on approving the transaction for weeks and months in hopes that some other buyer will come along with a higher offer. This delay also affects your mortgage interest rates. The longer the delay, the more likely it is that the market conditions will cause a significant shift in the interest rates, and that shift won't necessarily be in your favor. You can try to get around it through mortgage rate locks, but keeping them in place costs money. The longer you wait, the more money it will cost.

If stalling fails, the lenders may try to persuade you to pay more. Since the short sale is made by both the homeowner and the lender, both must agree to the sales terms. Even if the homeowner is willing to sell his or her home for the price you are happy with, the lender can effectively veto the deal.  Some lenders will go as far as issuing what amount as part of an ultimatum--either you buy a home at the price they want or the lender breaks off negotiations.

Both of those things will undercut the benefits of the short sale. What looked like a sure deal becomes a long, drawn-out process that, in the worst-cases scenario, will leave you with nothing to show for it.

Potential Issues with Property Conditions

Another important issue to keep in mind when it comes to buying a short sale is that the home is usually sold as is. This means that the neither the lender nor the homeowner is responsible for whatever condition the home is left in. A "Los Angeles Times" article sited examples of foreclosed homes that had missing sinks, ripped-put bathroom fixtures, stained carpets and other types of damage. Some damage may not be so obvious. For example, if you bought the home during the summer, you may not notice that something was wrong with heating until winter. But whether the problem is, big or small, you will still be stuck paying for the repairs. You can try avoid this situation by hiring a home inspector, but this has a potential to backfire if the sale doesn't go through, since it would mean that you spent money inspecting something you didn't even get. 

blog comments powered by Disqus