June 11, 2010
Everyone is looking for that deal of a lifetime and today turn to short sales as the best way to find it, they think. Problem is often the same people who want a great deal from a short sale also want the home to be in pristine condition and located in paradise.
Some things never change do they?
Yes, I’ve seen a few short sales that were a truly great deal with a beautiful home that was well maintained and in a highly desirable location. These dream deals are few and far between, however. In fact, dream deal short sales have become more like urban legends—your friend’s nephew’s aunt read about a $600,000 condo selling for $200,000 or less online. The myth grows until the person lands in my office wondering where to pick up that $50,000 1,200 square feet condo on the beach. If that were the case, there would be no short sales left on the market.
How Short Sales Work
Understanding how short sales work will quickly bring an understanding as to why these deals are often not that great. A short sale is a transaction where the mortgage holder agrees to receive less than the amount owed on a loan in exchange for a release of the mortgage to the homeowner.
Many buyers believe banks are jumping through hoops to eat the difference between the sales price and the loan balance. Lenders may be willing to work with a homeowner, but they are not in the business to take less than what is owed on thousands of properties.
I have seen on several occasions where the owner had priced the home lower, but once it went into a short sale, the price went up because the lender wanted the asking price to be at least the amount of the mortgage. In many cases, someone who does not own a distressed property can actually offer a better deal than what could happen on a short sale.
The lender may be willing to work out a sale, but they want their money back and will wait to find a buyer that will give them the price they want. In addition, every potential buyer in a short sale might have to pay additional fees over and above the normal cost of a closing. These fees could include unpaid homeowner association fees or unpaid property taxes. Some lenders require that the buyer make up the difference between what was owed on the mortgage and what the lender received in the sale. It’s called a note on the deficiency amount and can obviously be a deal killer.
Condition Of Property
If that isn’t enough to make you rethink short sales, let’s discuss the condition of the home or condo that you may be purchasing. Too often, the short sale homes are truly distressed. A homeowner in this situation often does not have the money to maintain the home, so the home is in need of repair, and I’m not discussing minor cosmetic issues.
Then there is the homeowner who is in dire need of cash and sells off appliances, light fixtures, air conditioner--anything of value in the home to make money. Of course, that means all of those items must be replaced by the new owner.
Seek Professional Advice
So for every great short sale of a very nice home or condo that you hear or read about, there are hundreds of other deals that are not great at all. My advice: Research the property thoroughly before diving into any short sale situation and make sure you know what the lender is requiring of the buyer. Then be prepared to wait—for many months in most cases—to receive a response from the lender, which may or may not be positive.
In our area of Florida, we find that the prices have corrected themselves so well that great deals occur every day on property that is not distressed.