Every day, hundreds of short-sale deals are made. The real estate investing niche that was formerly the most well-liked has remained relevant in recent years. Even if there aren’t as many deep discounts available, there are still a lot of great offers you can find. Identifying properties where you can add value is key to any real estate transaction. The work and effort are definitely worth it if you can buy the property at the right price. Short sales might not be the right option for everyone, though. They need considerable effort, some of which is wasted. If you are willing to look for them, diamonds are still in the rough.
A short sale is a real estate deal in which the lender permits the seller to sell the property for less than what they owe on it. Soon after the mortgage meltdown, these kinds of transactions became increasingly common across the country. Many homeowners owed more money than their homes were worth as home values dropped. Lenders should still consider accepting a loss on the sale as preferable to dealing with a foreclosure. A foreclosure can cost a lot of money and take a while to accomplish. Usually, the bigger the discount for a short-sale buyer, the harder it is to sell the property. Here are some of the benefits and drawbacks of short sales:
Discounts. The most obvious reason you would pursue a short sale is for the potential discount. At the height of the short sale craze properties were going for roughly 60 cents on the dollar. The market has since stabilized and lenders do not feel the same urgency to get rid of a bad asset. That being said there are still good discounts available. In most cases, the properties with the biggest issues offer the greatest discounts. Once you find a property and get the seller on board you need to present your case to the lender. The more issues you can show the better the discount.
They Help The Seller. A short sale is one of the last options before foreclosure. A foreclosure stays on the credit report for anywhere from four to seven years. This impacts the ability to purchase a car, rent a house or apply for a credit card. A short sale still shows up on a credit report but it is far less severe than a foreclosure. Yes, you are potentially making a profit but you are also helping the homeowner out.
The Ability To Negotiate. Working with lenders is often seen as a negatively associated with short sales. However the opposite is the case. With a short sale you have the ability to partially influence their decision. By supplying a cost of repairs, comparable sales and other negative items there is a chance that they will see the value your way. Ultimately the lender will do their own due diligence but you may be able to influence their decision.
Length Of Transaction. The biggest reason that many investors soured on short sales was with the length of every transaction. On average deals were taking 90 days to close, with some many months longer. It was not uncommon for a short sale to sit idle with a negotiator for several weeks on end. This tied up funds and restricted investors from looking at other deals. This wouldn’t be a problem if the deals ended up closing but many deals had 11th hour issues that prevented them from moving forward.
Uncertainty. Closing a short sale requires everyone to be on the same page. It is not enough for a seller to want to sell and a buyer to want to buy. You need to lender to agree to your offer. They will do their own independent valuation of the property. When this is done they may accept, counter or outright deny your offer. Even if they do accept the title needs to be cleared and any junior liens satisfied. If there is an issue in any one of these areas the deal goes back to square one.
Paperwork. To get a short sale approved the lender underwrites the application in reverse. Instead of seeing that the homeowner has income and assets to pay their mortgage they are looking for reasons they cannot. Typically there needs to be a documented hardship that caused the late payments. The process starts with a lengthy application that includes a financial worksheet. The homeowner needs to supply bank statements, W2’s, and a current paystub. With your offer you should include your supporting documentation. A cost of repairs, property damage, and comparable listings to support your value. All told there are dozens of pieces of paperwork that must be submitted before the lender will do anything. If one form or document is missing the lender will not start the process. When they ask for additional items your offer may go to the bottom of the pile adding several weeks to the process.
For every investor who avoids short sales there are others who thrive off them. Like anything else you do in real estate you should form your own opinion before making a decision. Short sales are still being closed every day and in the right situation could be a real home run.
Struggling to sell your property?
If you have a property you need to sell but having some problems, we at A Team can help you out. You can give us a call at 855-66A-TEAM (855-662-8326) or fill out our contact form here!