Top Reasons For Not Buying a Short Sale

Not Buying a Short SaleShort sale is a process in which a seller sells home less the amount owed on the property, but he needs to get the approval of short sale from bank to receive the less amount and bear the loss. Buying a short sale seems to be a good deal. Although slim margin of short sales may be profitable for buyer because there are always exceptions. Often the buyers are better off buying a home that is not in default. 

You unlikely hear that real estate agents tell you that buying a short sale is not a good deal. In the process of short sale everyone makes money except the buyers and sellers. It has been seen that sometimes listing agents push sellers to list home as a short sale because if they don’t list, then short sale listing agent will not get the listing.

Reasons Why Buyers Might Not Want to Buy a Short Sale 

There are plenty of reasons that why a buyer may not want to buy a short sale. Some of the major reasons are given here. 

Sellers Paid Too Much

One of the reasons that a buyer may not want to buy a short sale may be that the sellers paid too much when buying the home. If a home sold for $500,000 a few years ago and now have market value of $400,000. It does not mean that the buyer is picking up $100,000 of equity free. It means that the seller paid too much in rising market and the market has fallen.

Sellers Borrowed Too Much

Banks that were providing the mortgage in appreciating markets sometimes allowed borrowers to over-mortgage the home. It means that the loan balance exceeded the value of home. Appraisal are subjective and all the appraisals do not place the same value of a property. Sometime appraisers are pressured by banks to appraise at the amount the home owner wants to borrow, although it is against the law.

Stringent Qualifications

Unethical and inexperienced short sale consultants sometime push the seller to committing a short sale when he does not qualify. The seller must provide the hardship letter proving the inability to pay the mortgage. Some short sale agent list home as a short sale without getting the short sale approval form bank.

Homes Sell at Market Value

Lenders are well aware of the market price of a home and will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If the lender feels that a better price can be obtained by going into foreclosure instead of a short sale, then he might hold property for a higher price. Lenders accept short sales when the home is worth the short-sale price, which means market value otherwise they would like to opt for a foreclosure.

Homes Sell “As Is”

If a lender agrees to a short sale, then it is most likely that he will pay the closing costs in the short sale. Lenders will ask buyer to buy the home at “as is” condition and will typically refuse to pay for:

  • Suggested repairs on home inspection
  • Pest Inspection or work required to issue pest clear report.
  • Roof certification or roof repairs
  • Home protection plans for the buyer
  • Deferred maintenance 

Long Time Required for Closing

As the short sale is a long process and sometimes buyers don’t want to wait a long. Depending upon the type of loan obtained and the involved bank it can take more time than required for a normal short sale. If there are multiple lenders involved, then it would take more time too satisfying all the lenders.

Lenders Can Change Condition

Sometimes lenders reserve the right to negotiate the terms at the last minute. The lender can attempt to change the terms if market changes, new laws pass or new information come across the lender’s table. Lenders are established organization so they have lawyer on their panel and can attempt to change the terms of contract.

Lenders Discount Commission.

Generally, only lenders who have sold loan to Fannie Mae and Freddie Mac are paying traditional real estate commissions to the real estate agent for their services. The others may want to get a discount. Often, agent end up doing process when they are getting paid less doing two or three times more work than a conventional transaction. If you have an agreement with short sale agent to pay a certain percentage and you lender discount commission then you will have to pay the difference, if your agent refuses to waive the difference. 

Higher Buyer Closing Costs

Because then lenders rarely will pay for any extras, but sellers would be willing to do. If you want any of those extras, you will have to pay for them by yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, then you will probably pay for them out-of-pocket.

Little Seller Motivation

When seller comes to know the short sale effect on credit score is close to that of foreclosure, there is little incentives for the seller to cooperate with a short sale. Although sellers may qualify to buy another home after two years after a short sale as compared to the foreclosure.

 

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