10 Tips for Buying a Short Sale Home

5 min read

Buying a short sale home can mean a great deal, but the process works differently from a traditional purchase. Here are ten things every buyer should keep in mind.

The initial asking price may differ from the final price

Sellers often list low to attract attention, sometimes before the bank is even aware of what is happening. The lender always has the final say on a short sale. If you see something fresh on the market at a seemingly unbelievable price, there is a good chance it is not the final price. This can even drag out the process, as the bank may end up with several offers to reject or approve. As the buyer, you should have an agent working with you, because the process can take much longer than you would expect.

Check the seller's loans — one lender is best

When multiple banks are involved, the process becomes not only more complex but can also bog down in standoffs. Different lenders may want different things and may favor different buyers. Wait times stretch out when banks cannot agree. A property with a single lender is best.

If your offer is too low, you will lose out

Remember that the seller and agent often set the price without the bank's knowledge. When offers come in below what the lender expects, the bank will often reject them without giving the buyer any feedback. Lenders can get so swamped with low offers that you may not hear back for months, even on a solid offer. Play it safe, put in a strong offer, and stay positive.

Your agent needs to know the market

Your short sale agent has to know the market right up to the current month. They should be aware of what properties are selling, how long sales are taking, and the overall feel of the local market. For a seller, this is essential because the agent needs to set a price the bank will approve. For a buyer, accurate pricing gives you a better feel for the local market throughout your search.

Despite the name, short sales aren't always short

Don't let the name fool you — short sales can be long, very long. You should not put all your eggs in one basket. Stay active and keep several properties in mind. Although laws differ by state, in many states (including Florida) it is completely legal and risk-free to have multiple offers out at any given time.

Sellers with significant net worth may not be eligible

A seller with significant net worth may not even be eligible to list as a short sale. In some cases, the seller has had to pay back the difference. This generally does not affect the buyer, other than the seller needing to be aware they may be legally responsible for the shortfall.

An approved short sale price moves faster

These are the ones to watch for. If a bank has an 'approved short sale price,' the deal can move quickly. This often means the lender accepted an offer previously, but the buyer did not end up closing on the property.

Lenders differ in what they're looking for

On a short sale, the lender has the final say and will usually pick the most appealing buyer and offer. But banks differ on what they consider attractive. Some prefer cash, some like a high down payment, some simply want the highest price, and others weigh the buyer's financial strength and credit.

Don't expect repairs or upgrades

If the house is in disrepair, or even if only minor repairs are needed, don't expect them to be made. It will be left to you, the buyer.

If you're approved, close — don't wait

In a traditional sale there is often some flexibility with the closing date — not so in short sale transactions, where exceptions are almost never made. Get your paperwork done and your financing finalized as soon as the closing process begins. Savvy agents will have much of the paperwork ready even before the closing date. If a problem comes up near closing, let the bank know immediately. Time is of the essence at this stage.