If you are interested in buying a new home or investment property from short sale home listings, you may get a good deal from a motivated buyer.
Short sale home listings present an opportunity for you to buy a new home or an investment property at a price lower than market value. Buying a short sale requires some work and investigation, yet the trouble may definitely be worth it.
A brief explanation of a short sale is that the homeowners owe more on the mortgage than the current home value. If the homeowners default on an underwater mortgage, the lender can agree to let the homeowners sell the property in pre-foreclosure for less than they owe. Both the homeowners and the lender want to avoid the cost and hassle of foreclosure. The foreclosure process costs the lender more than a short sale and does more damage to the homeowner’s credit.
Thousands of short sales on the market
CNN Money recently reported that three times as many homes are being sold through short sales home listings than are going through foreclosure. The good news for you is that overinflated housing prices have dropped significantly since 2006. And, homeowners who are underwater on their mortgages want to sell.
To find short sale home listings, you can rely on a licensed real estate agent or do the research yourself. An agent will have access to current real estate short sales home listings on databases and through their network of agents and lenders. Often, banks and other mortgage lenders will hire real estate agents to sell pre-foreclosure and foreclosure properties. Homeowners also hire agents who specialize in short sales to market homes and negotiate with the buyer and lender.
If you decide to hire an agent to help you find real estate short sales home listings, make sure the agent is trained and experienced with pre-foreclosure sales. Ask prospective agents about the steps they take to ensure the home is a good deal, recent short sales they have negotiated and what hitches you can expect in the process.
Tips for finding a good real estate agent include:
- Ask for referrals from agencies that specialize in short sales
- Watch for-sale signs in the area to determine who lists short sales
- Search online for local agents who specialize in foreclosure and pre-foreclosure
- Contact real estate agencies that offer foreclosure real estate training
Shop for short sales yourself
If you want to look for homes in pre-foreclosure by yourself, there are several ways to do so. You can find these properties in public records, in newspapers, online and in neighborhoods. When a homeowner defaults on the home loan, he or she is served with a Notice of Default (NOD) and/or Notice of Sale (NOS). The lender must file both of these records with the county court and publish them in the local newspaper for several consecutive weeks. Therefore, you can find possible short sales free of charge at the courthouse and for a nominal fee through the newspaper.
These notices don’t tell you if the homeowner is interested in a short sale, however. You will need to contact them or have a real estate agent contact them to inquire about the property. This is a touchy situation because the homeowners are in financial hardship and may be scrambling to repay the delinquent mortgage. Even if the homeowners are interested in selling, they probably don’t want people coming to the front door to talk about it. It’s recommended that you mail a postcard or letter that briefly explains your interest in the home and asks the homeowners to contact you. Then, they may give your information to a real estate agent if they are using one. Your agent may initiate this contact as well.
In addition to the public notices, websites are a good source of short sales home listings. Banks, lenders, real estate agents and private companies all list short sales on their websites. You may also ask directly for short sale lists from banks and lenders. The U.S. Department of Housing and Urban Development ( HUD ) also has a pre-foreclosure home sales program for homes in default that had mortgages backed by the Federal Housing Administration (FHA). HUD requires that you work with an approved real estate agent to buy homes through this program.
This comprehensive guide explains the process of bidding on a HUD home and financing available to buy these properties.
Beware of possible hidden costs
If you are not interested in a HUD home and no agent is involved, keep in mind that a short sale home can have issues that you will have to pay for as soon as you buy it.
Some of these potential issues are:
- The property may have a second mortgage or liens; a title officer can research this.
- The homeowner may not be in default, in which case the lender won’t agree to a short sale.
- The property is most likely for sale in as-is condition and may require costly repairs.
- You may need a real estate attorney to negotiate any provisions in the contract.
- Lenders may reject your offer or counter with a higher sale price, which prolongs the sale.
- The homeowner may have filed bankruptcy, in which case the lender will not approve a short sale.
- Even if the lender approves your offer, it could take months to get that response.
Proceed with patience
Even with an experienced real estate agent helping you, the short sale process can take months. You will want to have the property inspected professionally to get an accurate report of the home's condition, yet you may not be able to negotiate contingencies. This means that you may be out a few hundred dollars for every inspection, but still not close a sale. If the home requires excessive repairs, remodeling or upgrades, consult a knowledgeable contractor before buying. Zoning laws may prohibit you from taking your desired action, resulting in a future loss on the property.
In addition to all of this legwork, the final steps of a short sale slow the process further. Once the lender approves your offer, you may need a lawyer to handle the closing paperwork. Plus, the homeowner needs time to vacate the property.
If you prefer look at foreclosed homes rather than negotiate a short sale with a lender and owner, you can learn how to find foreclosure listings and buy these homes here.
The effort involved with buying a home from short sale home listings is extensive, yet worth it when you find an ideal home or rental property. If you want to browse short sale listings today, you can view listings in your area free of charge at RealtyNow.