Think Before a Purchasing a Short Sale

A lot of people with a little bit of disposable income seem to think that real estate is a better investment today than ever before. This is true to some extent, but investors should never put their money into anything without knowing as many facts as possible. Terms like "short sales", "REO", "Foreclosure", and "Auction" may have potential buyers salivating, but don't make the mistake of leaping before you look. In this article, we are going to talk specifically about the things you need to keep in mind when considering buying a short sale property.

Short sale properties are (usually residential) pieces of real estate which are being sold at a "discount" price. The discount refers to what the mortgage lender has done for the seller, namely allowing them to sell the home for less than what the loan amount is. The bank avoids the costs associated with foreclosure, the seller avoids a bad credit report.

That's where a lot of people start leaping and stop looking, when they think of buying short sale homes. There are a few important things to keep in mind.

First of all, short sale homes aren't really considered such until there is an actual offer on the home. That means a potential buyer has to have done the homework on the seller's financial situation before making an offer. The seller is the one who has to go to the bank or whoever their lender is and suggest the short sale. That means those looking to buy a short sale have a considerable amount of work before them, even before the offer is made.

Next, that interaction means that instead of the standard two parties involved in a real estate transaction (the buyer and the seller) there are three (buyer, seller, lender). The lender needs to be convinced that the price is all they can get for the home, and that the discount is the best interest of their business. Again, this can be an uphill battle; the reception will depend on the institution and maybe even the individual representative.

Last but not least, a short sale may not always mean you get a screaming bargain. A lot of the time, especially today, that discount will not mean the home is listed below market price, but rather in line with market price. You're not really getting a discount; the property is instead retaining true value.