Are You a Good Candidate for a Short-Sale Purchase? [2022 Update]

Posted: May 12th, 2011

Understanding Short Sales in the Context of the Current Real Estate Market

When this article was initially published in 2011, Fannie Mae recorded a record high number of short sales across the country. According to Salcines Law, it was around this time that many banks dedicated their attention to streamlining the short-sale negotiation process, and new legislation was introduced that affected the way mortgage servicers handled such transactions. 

Since then, the number of available short-sale homes in Florida has decreased significantly; still, the process of making an offer on and obtaining a short-sale home is so unique that it warrants some discussion. An important first step is understanding what exactly constitutes a short sale.

What Is a Short Sale?

A short sale is commonly used to avoid foreclosure and involves the seller negotiating with their lender to accept less than the full amount needed to pay off their mortgage. This tactic is seen as a favorable alternative to foreclosure for a number of reasons:

• It makes less of a negative impact on your credit score
• It helps you eliminate your mortgage debt
• It allows you to stay in your home until the sale is completed and leave your home on your terms rather than being evicted by the bank
• The bank covers the fees for the sale of your home

It is important to note that a short sale is not the same thing as a foreclosure. To be clear, short sales do typically indicate that the seller is in some form of financial distress; however, to move forward with a short sale, the seller must provide evidence of recent financial issues (i.e. loss of employment or divorce) to the lender that were not present at their time of purchase.

Are You a Good Candidate for a Short-Sale Purchase?

Just as selling a home via short sale involves a unique process, purchasing a short-sale home takes a few extra steps as compared to a traditional home purchase. It takes a particular kind of buyer to see a short sale all the way through. Are you that buyer? Take a look at this list of qualifiers to find out. 

You have a great real estate team at your side

Purchasing a short-sale home is not for the faint of heart, and it requires a good deal of knowledge of real estate law and negotiation. Any type of distressed property purchase involves nuance. Your trusted real estate advisor should know enough about the current housing market to help you understand the true value of the property, as well as how much of a total investment you can expect after updates and repairs.

You’re ready to put in some work

Distressed properties like short sales and foreclosures often require some repairs and updates before they’re ready for renting, reselling, or just for you to live in. You may be purchasing the home for a lower-than-usual price, but you need to factor in how much you’ll need to spend on renovating the home. If you plan on moving in yourself, you may be able to work on an extended timeline, but if you’re planning to rent or resell, you’ll want to work as quickly as possible. 

You have a good deal of patience

As we mentioned above, the short-sale negotiation process has been streamlined in the last decade; however, short sales can still take longer than the average purchase to go through. Short sales can involve three or four different parties, especially when the seller needs to negotiate with lenders over multiple mortgages. It can involve some back and forth before all parties are totally satisfied and ready to move forward with the transaction. If you are in a position where you need to move right away or you can’t be flexible with your timeline, a short sale might not be right for you.

You’re planning on paying cash

You probably know by now that cash is king. Many sellers tend to favor buyers who can bring cash to the table, or at least make a sizable down payment. In the case of a short sale, paying cash can allow you greater flexibility in your timeline to get you all the way to the closing table. Also, keep in mind that if you will have any contingencies attached to your offer, i.e. needing to sell your home before you complete the purchase, the seller might choose another offer over yours.

What Are the Benefits of Purchasing a Short-Sale Home?

So, why should you take on the unique challenge of purchasing a short-sale home? There are a handful of advantages for buyers. 

You’ll find a good deal

The main reason potential buyers seek out short sales is for the opportunity to purchase a home for less than the average market price. According to Mashvisor, short sale buyers can expect to negotiate a ten to twenty percent discount from the value of the home. Just keep in mind that you will most likely need to pay for repairs and upgrades, so be sure to factor those costs in when you make an offer. 

It’s an easier transition than a foreclosure

The process of taking over a home after a foreclosure can be uncomfortable, to say the least. Sometimes, families may be unwilling to leave the home when it is abruptly reclaimed by the bank. However, moving forward with a short sale is the seller’s decision, which indicates that they will most likely be more cooperative when it comes time to transfer the property. You’ll be able to get right to the business of repairing and revamping in no time.

The bank is likely to offer favorable terms

According to SF Gate, even if the bank has the option to reclaim a property by foreclosure, there are a handful of reasons that make a short sale situation more favorable for all parties. When they move forward with a short sale, they won’t be saddled with the costs of repairs to ultimately sell the home, and they’ll avoid exorbitant admin and eviction costs. As such, they may be willing to offer more favorable terms to the buyer to make the transaction even more appealing.

You should be able to gain easy equity

When you purchase a home for a low price and then spend time improving it, you’re well on your way to gaining equity on the property. Why is this important? Well, because it gives you the opportunity to build your wealth over time. Should you decide to flip the home or present it as a rental, you should be able to maximize your profits.

Work With a Great Team to Purchase a Short-Sale Home

Don’t go into the short-sale purchase process on your own! To ensure your transaction is completely legal and gives you the best value, work with a team of real estate professionals with experience in the Brevard County housing market. Our seasoned agents are familiar with the short sale process and are ready to lead you to success. To learn more, call Ellingson Properties at 321-750-7050.