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What You Need to Know About Buying Short Sales
By John S. James
Photo: © Christopher Rawlins - Dreamstime

"Short Sales" has become the buzzword of success in today’s real estate market. In the prevailing economic slowdown, many homebuyers are failing to maintain their loan repayments. As a result, the lender has a choice between initiating a foreclosure proceeding, or letting the property be sold for an amount less than the mortgage against the property. Whenever the lender determines that it may be financially better for them to sell the property rather than opt for foreclosure proceedings, a short sale is in order.

However, buying short sales may not be a profitable proposition in all cases. Potential homebuyers should take note of the following points:

What is the true market value of the property in the current conditions?
Just because it is a short sale offer does not necessarily make it a lucrative real estate deal. It is important to conduct a proper appraisal of the property, its location and accessibility, and the future market prospects in that area.

Evaluate the condition of the property.
Many times, a property that is available on
short sale may not have been properly maintained. The truth is that the lenders who are enforcing the short sale are unlikely to invest more money in a property where they are already taking a loss. At the same time, the homeowners also know that they are going to lose the property, so they are not likely to spend on its upkeep either. Therefore, the new buyer must carefully assess the condition of the property before buying any short sale.

Factor in the closing costs of the deal.
In a normal real estate deal, the convention is that the home seller pays for the roof and construction inspections, pest control, and home warranty plans. But in a short sale, the lender is unlikely to absorb these costs.

Factor in the closing time for escrow.
A short sale will usually require a much longer time to close escrow because of the complex legal processes involved. Furthermore, if the property is under more than one lender, then there has to be agreement among all lending parties on the terms of the short sale, which can be time-consuming.

Hire the services of an experienced real estate agent.
Short sales are generally much more time-consuming than a regular real estate transaction. At the same time, they usually generate two or three times the paperwork too. Anyone who is considering buying short sales should get in touch with a real estate agent who has sufficient experience in handling such transactions. That will ensure better financial security for the investor, even though they may have to pay a higher commission to the agent than would be paid in a traditional sale.