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I have read on numerous sites about short sales. I understand that this helps the seller out by avoiding foreclosure and such.
However, I am a first time buyer, should I avoid short sale houses? What are my advantages and disadvantages?
I saw a couple of short sales but ignored because I heard it's a very difficult process. Can someone explain what are the pros and cons in this situation.
Not many pros if it is priced right. Banks are not giving houses away but many people think that short sale houses are priced lower.
Cons:
The process takes a long time for the most part, could be anywhere up to 9 months and even longer. The houses are usually in an as is condition many times not in the best of shape. These are the biggest cons in my opinion.
Thank you guys. That's what it seems like. I guess I should stay away since I am not willing to wait that long and go through the hassle as a first time home buyer.
I'm house hunting too so I know how great the temptation can be to buy one of these houses. It seems like at least 40% of the houses in my price range are short sales, it is so frustrating!! We did fall in love with one house and later found out it was a short sale, we tried to move forward on it anyway with no avail.
Sometimes a house will be listed deliberately low just to attract a bid because most of the times the seller and agent know they will need to do a short sale but the bank has no idea. They need the first bid (how ever low and ridiculous) to get the bank to even get the ball rolling on the paper work and consider this house for a short sale. The bank doesn’t want to give the house away so 99% of the time the first deal falls apart (sucks for the potential buyer who is basically just being strung along) but now the bank may approve a price or at least say they are willing to work with the seller on a short sale. Then they have to go out and get another higher bid. The whole time it is taking at least 10 days just to get a response from the bank on anything. They move slower than molasses! Once they get an offer that they are moving forward on they start doing a TON of background searches on the seller to make sure they are not trying to get out of this debt while having 10K squirreled away somewhere. All the while they are not required to take the house off the market so here you are waiting 3 months for your deal to be approved and they are still showing the house, in fact they maybe sitting around actually waiting to get more bids because the bank may want multiple bids so they can pick and choose which one they are most comfortable with. THEN after all that you're getting closer to closing and the bank may have closed on some other short sales and the banks “write off” budget may have gotten all used up for the quarter or the year. Trying to time this so your in at the beginning of the quarter or year is useless because 1) your at the mercy of their timetable anyway and 2) sometimes they are very tight with write off’s at the beginning of the quarter in an effort to save some for later. UGHHH!!! Now imagine you go through all that (which if you’re a lucky duck was at least 4 months and if your unlucky it could be over 6 months) someone can swoop in at the last minute and put in a high bid and you loose the house. Back to square one.
It’s such a shame, the way the process works these houses will probably just end up going into foreclosure be in state of disrepair by the time they get there (if you can afford the mortgage you certainly can’t afford maintenance!) They’ll sit empty for months dragging down the property values of the surrounding houses, all while being an eyesore for everyone on the block. Then they will get swallowed up by some investor who can pay cash at an auction. I actually feel sad for the houses themselves!
I'm house hunting too so I know how great the temptation can be to buy one of these houses. It seems like at least 40% of the houses in my price range are short sales, it is so frustrating!! We did fall in love with one house and later found out it was a short sale, we tried to move forward on it anyway with no avail.
Sometimes a house will be listed deliberately low just to attract a bid because most of the times the seller and agent know they will need to do a short sale but the bank has no idea. They need the first bid (how ever low and ridiculous) to get the bank to even get the ball rolling on the paper work and consider this house for a short sale. The bank doesn’t want to give the house away so 99% of the time the first deal falls apart (sucks for the potential buyer who is basically just being strung along) but now the bank may approve a price or at least say they are willing to work with the seller on a short sale. Then they have to go out and get another higher bid. The whole time it is taking at least 10 days just to get a response from the bank on anything. They move slower than molasses! Once they get an offer that they are moving forward on they start doing a TON of background searches on the seller to make sure they are not trying to get out of this debt while having 10K squirreled away somewhere. All the while they are not required to take the house off the market so here you are waiting 3 months for your deal to be approved and they are still showing the house, in fact they maybe sitting around actually waiting to get more bids because the bank may want multiple bids so they can pick and choose which one they are most comfortable with. THEN after all that you're getting closer to closing and the bank may have closed on some other short sales and the banks “write off” budget may have gotten all used up for the quarter or the year. Trying to time this so your in at the beginning of the quarter or year is useless because 1) your at the mercy of their timetable anyway and 2) sometimes they are very tight with write off’s at the beginning of the quarter in an effort to save some for later. UGHHH!!! Now imagine you go through all that (which if you’re a lucky duck was at least 4 months and if your unlucky it could be over 6 months) someone can swoop in at the last minute and put in a high bid and you loose the house. Back to square one.
It’s such a shame, the way the process works these houses will probably just end up going into foreclosure be in state of disrepair by the time they get there (if you can afford the mortgage you certainly can’t afford maintenance!) They’ll sit empty for months dragging down the property values of the surrounding houses, all while being an eyesore for everyone on the block. Then they will get swallowed up by some investor who can pay cash at an auction. I actually feel sad for the houses themselves!
ICIBIU,
You are right on the above for the most part except for the highlighted part. I work for one of these banks and we have a portfolio of about 300mm in loans. The reserves have been taken a long time ago on these loans. Banks have actually under valued these houses on their books because they don't want to come out in the future with more losses. In fact at the shop I work at, we value the loans somewhere in the 40 cents on the dollar range. Anything we can get on top of that would be profits. Since in many cases the houses are worth more than that, we can assure no future accounting losses on short sales.
Also, in an MBA class I took last semester, my professor (a managing director on a mortgage bond desk) stated 90% of all mortgages are paying on time. I'm sure that has moved down slightly since it was the spring semester, but that is still a decent percent. He went on to say that banks have valued the mortgages so low (as you can see in my real life experience above) that if you were to buy these mortgages at their valuation prices you would make a fortune. This is in fact why some hedge funds have been gobbling up these mortgage bonds in huge chunks at high discounts.
Just bid for the house you want, at what you think is the market value.
The 'short sale' is between seller/lender and bank. Pretty much, if the seller has legitimate hardship, then the sale will probably go through. And, it's pretty easy these days for the bank to evaluate hardship.
If the seller has money elsewhere, then the bank will probably not take much of a write-down on the sale. The bank is not likely to take a loss on a loan, where the lender has equity/money somewhere else. So, if the seller is motivated, they will 'pledge the deficiency' one way or another.
In any case, if you like the house, bid, that's what I would do.
Wow.. that's a lot of things to learn about. I just don't understand why this house is still a short sale. The listing price is 349,000 but he purchased the house on September 2005 for the price of 425,000. During the 3 years, he didn't even pay $75,000? Does this make sense to you guys?
Wow.. that's a lot of things to learn about. I just don't understand why this house is still a short sale. The listing price is 349,000 but he purchased the house on September 2005 for the price of 425,000. During the 3 years, he didn't even pay $75,000? Does this make sense to you guys?
A lot of people refinance…. My coworker refinance her house less than a year, to fix her roof and took additional $20,000 cash out of the house to pay bill & a trip to Hawaii with her family
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Short Sales
