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The number of short sales has fallen significantly in the last year as rising home values have forced far fewer distressed homeowners to sell, even though they owe their lender more than their homes are worth.
Yet short sales remain plentiful in some states, and you can still find some serious bargains, which is the major reason any buyer messes with a short sale.
Short sales allow borrowers struggling to make their payments to put their homes on the market for less than they owe on the properties. When offers come in from buyers, the bank or mortgage company has to approve the deal.
Lenders will only do that when a short sale costs less than foreclosing. What’s more, every bank or finance company with a lien on the property, including those who provided a home equity loan, must accept the terms or be paid off.
That extra step, and the financial industry bureaucracy it involves, is why most buyers find short sales to be a long, aggravating effort. Here are four smart moves for navigating the process.
Smart move 1. Make sure you’re a good candidate.
This type of home purchase is all about presenting the lender with a deal it can’t refuse. Banks and mortgage-servicing companies are most likely to approve buyers who:
- Have a substantial down payment.
- Have been preapproved for a home loan.
- Place no contingencies on their contract, such as having to sell their current home before proceeding with the purchase.
Smart move 2. Hire a real estate agent who is experienced in this type of sale.
Many banks have companies that manage their short sales. You need a pro of your own to match that experience and help you navigate the process.
A real estate agent who has done lots of short-sale transactions will know how much of a discount is common in your area, what you’ll need to do to get your bid accepted and when to walk away from a deal that’s not going your way.
Your agent should ask the seller’s agent if the bank has actually agreed to sell the home for less than is owed or if the seller is just hoping to do so. In the latter case, you could be wasting your time.
Smart move 3. Offer the right price.
Knowing how much to offer is key, but it’s not as straightforward as figuring your bid on an owner-occupied home or even a foreclosure.
Be aware that the listed price is only an estimate of what the seller and listing agent think the bank will accept.
Oftentimes, we see listing agents market homes at a bargain price, only to have the final bank approval come in at a higher price.
How much of a discount can you get? Location and condition make a big difference.
Smart move 4. Be prepared to wait — but not too long.
It almost always takes longer to close a short sale than a regular home sale, because it takes so long for lenders to review and accept your proposal.
When you make a short-sale offer, federally regulated lenders must respond within 30 days and deliver a final decision within 60 days. That deadline has loopholes, however. The lender can ask the home sellers for more paperwork and then delay the decision while waiting for the paperwork.
Nationally, short sales were on the market for a median of 116 days in November 2014, according to National Association of Realtors. Foreclosures sold in a median 65 days and nondistressed homes took 63 days.
Be willing to put your schedule, your money and your sanity on the line for a short-sale home…