Thinking
of Making an Offer on a Naples Short Sale? What
You Need to Know
Are you looking to buy a
new home? Are you thinking that now's a great
time to find bargains? That's true, but it pays to know a little about
the
seller's situation before you make an offer.
If a home is
being sold for below what the current seller owes on the
property—and the seller does not have other funds to make up the
difference at
closing—the sale is considered
a short sale. Many more home owners are finding
themselves in this situation due to a number of factors, including job
losses,
aggressive borrowing against their home in the days of easy credit, and
declining home values in a slower real estate market.
A short sale is
different from a foreclosure, which is when the seller's
lender has taken title of the home and is selling it directly.
Homeowners often
try to accomplish
a short sale in order to avoid foreclosure. But a short sale
holds many potential pitfalls for buyers. Know the risks before you
pursue a
short-sale purchase.
You're
a good candidate for a short-sale purchase if:
- You're
very patient. Even after
you come to agreement with the seller to buy a short-sale property, the
seller’s lender (or lenders, if there is more than one mortgage) has to
approve
the sale before you can close. When there is only one mortgage,
short-sale
experts say lender approval typically takes about two months. If there
is more
than one mortgage with different lenders, it can take four months or
longer for
the lenders to approve the sale.
- Your financing is in
order. Lenders
like cash offers. But even if you can’t pay all cash for a short-sale
property,
it’s important to show you are well qualified and your financing is
set. If
you're preapproved, have a large down payment, and can close at any
time, your
offer will be viewed more favorably than that of a buyer whose
financing is
less secure.
- You
don’t have any contingencies. If you have
a home to sell before you can close on the purchase of the short-sale
property—or you need to be in your new home by a certain time—a short
sale may
not be for you. Lenders like no-contingency offers and flexible closing
terms.
- If you're
serious about purchasing a short-sale property, it's important
for you to have expert assistance. Here are some people you want to
work with:
- A
qualified real estate professional.* You may
have a close friend or relative in real estate, but if that person
doesn’t know
anything about short sales, working with him or her may hurt your
chances of a
successful closing. Interview a few practitioners and ask them how many
buyers
they've represented in a short sale and, of those, how many have
successfully
closed. A qualified real estate professional will be able to show you
short-sale homes, help negotiate the purchase when you find the
property you
want to buy, and smooth communications with the lender. (All MLSs
permit, and
some now require, special notations to indicate that a listing is a
short sale.
There also are certain phrases you can watch for, such as “lender
approval
required.”)
- Title officer. It’s a good idea to have a
title officer do an initial title search on a short-sale property to
see all
the liens attached to the property. If there are multiple lien holders
(e.g.,
second or third mortgage or lines of credit, real estate tax lien,
mechanic’s
lien, homeowners association lien, etc.), it's much tougher to get that
short
sale contract to the closing table. Any of the lien holders could put a
kink in
the process even after you’ve waited for months for lender approval. If
you
don’t know a title officer, your real estate attorney or real estate
professional should be able to recommend a few.
Some of the
other risks faced by buyers of short-sale properties include:
- Potential
for rejection. Lenders
want to minimize their losses as much as possible. If you make an offer
tremendously lower than the fair market value of the home, chances are
that
your offer will be rejected and you’ll have wasted months. Or the
lender could
make a counteroffer, which will lengthen the process.
- Bad terms. Even when a lender
approves a
short sale, it could require that the sellers sign a promissory note to
repay
the deficient amount of the loan, which may not be acceptable to some
financially desperate sellers. In that case, the sellers may refuse to
go
through with the short sale. Lenders also can change any of the terms
of the contract
that you’ve already negotiated, which may not be agreeable to you.
- No repairs or repair
credits. You will
most likely be asked to take the property “as is.” Lenders are already
taking a
loss on the property and may not agree to requests for repair credits.
The risks of a Naples
short sale
are considerable. But if you have the time,
patience, and iron will to see it through, a short sale can be a
win-win for
you and the sellers.
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