Nathan asks: Is there an advantage to buying a short sale house? What if the house has been on the market for a long time? What does that tell you about the house and the bank?
There are definitely advantages to purchasing a ‘Short Sale’. However, first it’s important that you understand exactly what a short sale is and how the process works. If you haven’t already, read an earlier post, “Short Sales: A brief summary“.
The main advantage with a short sale is that you may be able to negotiate a purchase price which is substantially lower than its “fair market value”. Typically when these properties come on market, they are priced strategically to peak a high level of interest and generate an offer quickly. In most cases the listed price is already less than what is currently owed on the mortgage. Often the bank will opt to cut their losses now in order to avoid a costly foreclosure process. Short sales are also referred to as “Pre-foreclosure” sales.
If you notice that a short sale property has been on the market a long time, it could be the result several factors including:
- The asking price is too high scaring off potential buyers.
- They are currently waiting for response from the bank on a primary offer and yet continue to market the property in attempts to get “back-up offers”
- The bank could be rejecting offers in expectation that they will receive a higher netting offer.
- The home might have started off as a regular listing and then turned into a short sale over time.
- Or the property could be falling in and out of escrow as it is more common with these types of sales.
As for what it means; the longer the property sits on the market as a short sale, the higher the probability it will become a “foreclosure”. If the seller is not bringing the note current, then the foreclosure process continues until it is complete. This can take between 6-9 months.
Last thought, if you’re considering short sale listings, understand that it may require a little extra patience and perseverance. Banks can take between 3-6 weeks to respond to your offer, and it won’t always be good news.
Great questions Nathan, hope that helps.
