Colorado Springs Real Estate Blog
Colorado Springs Buyers: 5 pitfalls of short sales
A property becomes a short sale listing when the homeowner owes more on the mortgage than what the property can be sold for in the current market. Many homebuyers are interested in purchasing pre-foreclosures since they are often listed below market value but if you expect for everything to be smooth sailing throughout the transaction you had better think again. Short sale properties do not work for everyone and if you are interested in buying a short sale, it is important to understand there can be complications during the process.
1. Short often means Long - If a buyer is on a strict timeline and doesn’t have time to wait for a response, short sales may not be the way to go when looking for a home to buy. Normal transactions can close in 3 to 4 weeks whereas short sales can take 6-8 weeks to close. If the listing agent is inexperienced with short sales, the process can take even longer, especially, if the necessary paperwork for the short sale package has not been obtained from the seller and submitted to the bank. Addionally, buyers cannot submit an offer on another property during this period of waiting for a response unless they terminate the contract and move on to another home.
2. Sold As-Is- It is not uncommon for short sale properties to be sold in as-is condition. If the sellers cannot keep up with their mortgage payment, they probably do not have enough money for repairs either. It is very important that buyers have the property inspected to find out if the home will require any repairs. Caution: Plumbing leaks can become an issue if the property was never winterized and the pipes froze. Make sure to have the property dewinterized in order to have the property inspected thoroughly for any water leaks or damage to the plumbing. Inspection items can become an issue if the buyer is obtaining FHA or VA financing. Depending on the problem, FHA or VA may not approve financing the loan unless the problems are corrected in the home. The buyer may choose to have the property inspected prior to sumbitting an offer and adjust the amount of the offer to reflect the condition of the property.
3. Multiple Offers- Some sellers will accept multiple offers and their real estate agent will submit them all to the bank. The bank may require the seller accept more offers if the current offer(s) are not high enough. This is not a good situation for the buyers as it will be more difficult to get their offer accepted by the bank. The bank may also take much longer to respond since there are so many competing offers on the table. Your Colorado Springs real estate agent can find out if the listing agent is taking one offer at a time or multiple offers on the property.
4. Junior Liens- If the home has 2nd and 3rd liens such as unpaid property taxes that are discovered, the home may go into foreclosure since the bank may not be willing to pay off the other liens on the property. Involved parties need to do research to ensure there are no other liens that may interfere with the short sale.
5. Lender approval- Every bank is different and some are more difficult than others. Even though the seller accepts a contract offer from a buyer, it is still contingent upon bank(s) approval of the short sale. If the lender does not approve the short sale the transaction cannot close. If the seller has two mortgages held by different banks the short sale process can become increasingly complicated; the listing agent has to negotiate with not one, but two banks to accept the short sale. Even though the buyer may wait for bank approval over a period of weeks, the bank may require the transaction close with one or two weeks of their acceptance.