BUYING A SHORT SALE PROPERTY:
In my last post I talked about San Diego foreclosures and the process for buying foreclosure properties. This time I will discuss short sales and the process of buying short sale properties in San Diego.
A property that is sold as a “short sale” is one where the seller owes the bank more than the current market value of the home. The owner/seller has to agree to the sale, but so does the lender(s) who hold the mortgage(s). In some San Diego zip codes about half of the homes for sale are short sales.
The biggest problem with short sales is that the industry average is 1 out of 10 short sales actually close. The reasons are many, but it is usually because the listing agent did not understand the short sale process or properly qualify the seller before listing the short sale.
Property Condition – Similar to foreclosure properties, many SHORT SALE property listings are in poor shape because the seller is in financial distress. Remember, to get a short sale approved the seller needs to have a zero balance in their bank accounts. Missing fixtures and appliances and deferred maintenance are to be expected. And again keep in mind that FHA loans are not available on properties that have permit or code violations, safety or health issues, or for properties without structural integrity.
Buyer Beware – The same warning stated above also applies also to short sales. The seller may not disclose all defects in the home, and the home may have been improperly or insufficiently maintained. It is critical to have a professional inspector thoroughly evaluate the property condition, and even then the inspection may not identify all defects. And although the seller has a legal obligation to disclose any material defects, there is little chance of collecting money in any legal action against a financially insolvent seller.
Pricing – Sometimes the list price of a short sale may not accurately reflect what the bank or lender will actually approve. Some San Diego real estate agents put very unrealistic prices on short sales in order to attract more home buyers prospects (hard to believe, isn’t it?). Other agents may lack experience or have insufficient knowledge of current market values. Either way, it’s hard to give much authority to the list price of a short sale property.
Getting an offer accepted – As with foreclosure properties, banks do not like to counter-offer back and forth with short sale buyers. The banks will usually request that buyers submit their highest and best offer the first time. Other times they merely ask the listing agent for the highest and best offer if multiple offers have been received. The banks give preference to all-cash offers and offers with large down payments. They consider the bottom-line price minus any closing cost credits or repair requests. They do not like to pay for home warranties, and sometimes will not pay for termite reports or work.
Timing – When you submit an offer for a short sale property, don’t expect to hear back from the listing agent or seller anytime soon. It takes an average of 6 months and often up to a year or more to get a short sale approved in the current San Diego real estate market.