Seasoned home buyers know what to look for when buying a foreclosed or pre-owned home. Typically they look for structural damage or any other hints of what could turn out to be a costly home renovation or home improvement repair job.
Here are some tips from an article taken from Washington’s Top News about buying a home and minimizing the costs involved in home improvement fixes:
A short sale is the sale of property that has accumulated more debt than its market value. For a short sale to occur, the lender must agree to accept less than the total amount owed on the property.
A short sale is complicated, however, and it’s common for sellers seeking a short sale to have more than one mortgage on the property and possibly additional liens for home improvement work, utilities and even overdue homeowners association payments. As a result, the buyer in a short sale should expect the process to take longer than the usual 30 days. In fact, depending on the number of debts the seller incurred, it could take as long as six months to close on a house in a short sale.
Short sales are often seen as a common last-resort option during tough economic times. In the Great Recession, the U.S. Treasury Department released guidelines and incentives to lenders to allow for short sales to take place easier and faster, in an effort to reduce the number of foreclosures occurring nationwide.
[Read: The Guide to Buying a Home.]
In happier economic times, however, both short sales and foreclosures are down. Short sales made up just 1 percent of total existing home sales in August this year, according to the National Association of Realtors monthly home sales report. Combined with foreclosure transactions to account for all sales of distressed properties — or those that have debt issues — just 3 percent of all sales in August were distressed, which is the lowest share since NAR began tracking them in October 2008. In 2010, distressed sales peaked above one-third of all existing home sales, according to NAR data.
The benefit of buying a short sale is that you’re getting it for a low price, and the complications of the transaction make it so you’re far less likely to have competing offers from other buyers.
The downside is that you’re buying a house that’s been underwater financially for some time, since lenders often use a short sale to avoid the foreclosure process, and they’re ultimately losing money in the deal. You’re also walking into a transaction that’s more complicated than a regular home purchase — you have to receive approval from all lenders involved and negotiate liens with various other entities. All it takes is for one lender to refuse your offer for the deal to fall apart, which means there’s a higher chance that the deal fails.
John Myers, owner and qualifying broker of Myers & Myers Real Estate in Albuquerque, New Mexico, is a certified distressed property expert and has been a part of many short sales. He says a major obstacle to beginning a short sale is getting the seller to provide the necessary information to move forward with the short sale.
“They require a tremendous amount of information,” Myers says, including pay stubs, tax returns, banks statements and more for the lender to evaluate why the seller is trying to do a short sale.
It’s not just a matter of being forthcoming, but also proving that a short sale is the best financial move, Myers explains: “If they make way too much money or have way too many assets, the bank probably won’t accept a short sale.”
In a city or market where home values are rapidly rising due to housing shortages, short sales are less common because buyers are willing to pay a higher price. A Trulia report released in September reveals home values across the U.S. have grown more than 45 percent between mid-2012 and mid-2018.
You’re more likely to see short sales and distressed properties in markets that haven’t fared quite as well — notably in non-metro rural areas, according to the Trulia report. “Since the recession, [home values there have] kind of fallen flat,” says Felipe Chacón, a housing economist for Trulia.
The areas where property values are stagnant and population is dropping may be the place to find more short sale opportunities, “I would predict it stabilizing a little bit,” Chacón says.
Because real estate markets operate on a cycle, you can also expect property values to slow their growth in the places where houses go fast and prices run high right now. While elevated rates of underwater homes and an increasing number of short sales can be an indicator of tough economic times for an area, you can also expect it to happen more than once over the year (though not as frequently as in the recession).