{"id":22432,"date":"2021-02-26T15:29:18","date_gmt":"2021-02-26T23:29:18","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=22432"},"modified":"2021-03-01T15:29:48","modified_gmt":"2021-03-01T23:29:48","slug":"buyer-short-sale-pros-and-cons","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-short-sale-pros-and-cons\/","title":{"rendered":"Short Sale Pros and Cons: You Might Get a Great Deal, But Here\u2019s What Else You Should Know"},"content":{"rendered":"

When a homeowner can\u2019t afford to stay in their home, selling it short is one way to get out from under their debt. Through the short sale<\/a> process, the homeowner comes to an agreement with the lender to sell the property for less than the balance on the mortgage<\/a>, an arrangement that can help avoid foreclosure, and one that typically spares the homeowner the difference in cost<\/a>.<\/span><\/p>\n

On the surface, a short sale might sound like a great deal for a would-be buyer who is better positioned to benefit from the seller\u2019s tough spot. And it might very well be: It offers the new buyer the possibility of a great bargain.<\/p>\n

But that\u2019s far from a guarantee. This type of sale comes with plenty of challenges, including a drawn-out closing process<\/a> and little room for negotiation with an as-is sale.<\/p>\n

For a deeper dive, here\u2019s our expert-backed list of pros and cons to weigh before searching for that short sale so you know exactly what you\u2019re getting into.<\/p>\n

\"A
Source (resized): (Matt_Lodi<\/a> via Creative Commons Legal Code<\/a>)<\/figcaption><\/figure>\n

Short sale pros<\/h2>\n

Why would a buyer want to deal with an as-is sale that might take longer? There are some advantages to purchasing a short sale.<\/p>\n

1. Sellers are motivated to work with you<\/h3>\n

With short sales, sellers are motivated because they\u2019re facing a short sale as a last hope of avoiding foreclosure. That means you as the potential new buyer will probably have an easier time negotiating with the seller<\/a> compared with a seller who plans to get top-dollar in the traditional market.<\/p>\n

2. You can get a bargain<\/h3>\n

You may be able to get the house for below fair-market value<\/a> \u2014\u00a0obviously a big win for a buyer hoping to get a deal and the possibility of building equity fast.<\/p>\n

3. You get more out of your budget<\/h3>\n

And because you\u2019re likely to get a better deal, you can get more house for your budget<\/a>, which means you might be able to buy a home in a neighborhood that you wouldn\u2019t otherwise be able to afford. So short sales are often good opportunity generators for buyers.<\/p>\n

Put simply, \u201cYou’ll be able to buy more, and get more bang for your buck,\u201d explains Andrew Monaghan<\/a>, a Phoenix<\/a>-based agent with 20 years of experience who has sold 77% more single-family homes than the average agent in the area.<\/p>\n

4. You have major equity potential<\/h3>\n

With a short sale \u2014 by definition \u2014 the seller owes more on the mortgage than the house is worth. And for that reason, the home in question is not likely to be renovated, updated, or otherwise readied for sale. That can net you a discount below comparable properties<\/a> where the sellers are better positioned to make the house appealing for sale, and to squeeze every possible dollar out of it.<\/p>\n

\u201cYou get an opportunity to build your equity through sweat equity when you get into the house,\u201d Monaghan says.<\/p>\n

Beyond that, you might even start building equity before you get the keys: \u201cFor instance, there\u2019s the fact that if you get an offer accepted today and the market is still going up, you’ve got six to nine months, probably, before the entire process is over,\u201d he says. \u201cSo, the buyer has got a gain of equity even in that period.\u201d<\/p>\n

5. Short sales are in better condition than foreclosures<\/h3>\n

While short sales may not be fully updated or readied for sale, they are likely to be in better condition than other distressed sales. That\u2019s because they are often still occupied \u2014 after all, the homeowner currently owns the property, not the lender.<\/p>\n

These owners might not have been able to make all recent repairs, but the homes probably haven\u2019t been sitting vacant. So they haven\u2019t been squatted, burglarized, vandalized, or flooded for weeks without anybody noticing \u2014\u00a0and the condition is probably OK.<\/p>\n

6. You can get an inspection<\/h3>\n

Plus, you can get a short sale inspected<\/a>, unlike you would when buying a foreclosed property at an auction<\/a>. So if you are going the distressed route, a short sale feels like a less risky option, with more data points around the home\u2019s condition available to the buyer.<\/p>\n

7. There\u2019s less competition<\/h3>\n

Further, there\u2019s typically less competition for this type of listing. You don\u2019t have to worry as much about other buyers swooping in and disrupting your deal, which can add a lot of stress with a traditional sale in a hot housing market.<\/p>\n

\u201cSome people just don\u2019t want to get into it,\u201d Monaghan explains. \u201cThey don’t want to have the emotional roller coaster.\u201d And that\u2019s good for you \u2026 if you\u2019re up for it.<\/p>\n

\"A<\/a>
Source: (Sebastian Herrmann \/ Unsplash)<\/figcaption><\/figure>\n

Short sale cons<\/h2>\n

Of course, there are also good reasons why some buyers should be wary of short sales.<\/p>\n

1. You won\u2019t save that<\/i> much money<\/h3>\n

We\u2019ve established that buying a short sale can be an opportunity to save some money<\/a> on a home purchase.<\/p>\n

But the reality is, you aren\u2019t likely to save that<\/i> much cash. That\u2019s because the lender approving the short sale will usually conduct a detailed valuation to determine the property\u2019s current fair market value before deciding whether to accept your offer, and it will likely only agree to a significant discount if the house isn\u2019t updated or in the same condition as neighborhood comps.<\/p>\n

2. Short sales can drag on forever<\/h3>\n

Because the lender is involved and must approve your offer<\/a> after the seller does, a short sale takes much longer than a regular sale \u2014\u00a0it could be several months while you wait for the bank to respond to the offer.<\/p>\n

It\u2019s just not going to be a quick sale, and therefore it won\u2019t be right for a potential buyer who needs to move in quickly. \u201cA short sale is anything but short,\u201d Monaghan explains.<\/p>\n

3. Short sales are sold as-is<\/h3>\n

Again, these homes are purchased as-is. You can (and should<\/a>) get an inspection, and include a contingency that says you can back out of the deal if the condition is really problematic. However, you won\u2019t be able to negotiate repairs \u2014 you simply must take it or leave it.<\/p>\n

4. You have little room to negotiate<\/h3>\n

With a short sale, you don\u2019t have as much room to negotiate as a buyer \u2014\u00a0both in terms of price and concessions<\/a> (asking the seller to pay closing costs<\/a>). The bank is well aware of how much money they stand to lose on the deal, and that limits your wiggle room.<\/p>\n

5. Not every agent handles short sales<\/h3>\n

Because these are specialized listings, not every agent can handle a short sale with the expertise, the finesse, the specific negotiations know-how \u2014 and the endurance \u2014 they require.<\/p>\n

These sales are more complicated, with more players and more sign-offs, and you want to make sure you pick the right agent for the job. That\u2019s going to be one specifically experienced with short sales.<\/p>\n

6. Listings can be hard to find<\/h3>\n

These listings simply aren\u2019t always easy to find<\/a>. This type of sale comes about as the result of a specific homeowner circumstance, and that circumstance isn\u2019t equally likely to happen everywhere (or at least not often<\/i> everywhere).<\/p>\n

You\u2019re less likely to find them overall when the market is strong, whereas in the Great Recession<\/a> \u2014 which was at its core driven by the housing market \u2014\u00a0they were available in abundance almost everywhere.<\/p>\n

\u201cAt this moment in time in the market, there are very few short sales,\u201d Monaghan explains. \u201cBecause the market is moving at such a level right now, there are very few homes that are underwater.\u201d (He notes that this may change when moratoriums<\/a> related to the coronavirus pandemic lift.)<\/p>\n

Overall, there are many potential upsides to buying a short sale \u2014 and many potential pitfalls, too. So approach your house hunt with an open mind.<\/p>\n

And know this, according to Monaghan: \u201cThis is a market for a subset of a buying population, but it\u2019s not necessarily for everybody.\u201d<\/p>\n

Header Image Source: (Andy Dean Photography \/ Shutterstock)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

This type of sale comes with challenges, including a drawn-out closing process and little room for negotiation. Here are the short sale pros and cons.<\/p>\n","protected":false},"author":150,"featured_media":22438,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,629,635],"tags":[],"class_list":["post-22432","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-home-financing","category-auctions-foreclosures"],"acf":[],"yoast_head":"\nShort Sale Pros and Cons You Need to Weigh Before You House-Hunt<\/title>\n<meta name=\"description\" content=\"This type of sale comes with challenges, including a drawn-out closing process and little room for negotiation. 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