How To Buy A Short Sale As An Investor

As a real estate agent I get a lot of questions about short sales. What are they? How do they work? and can you get a good deal with one? I do believe that in the right situation they can provide a great opportunity for an investor to purchase, but there are some things you should know first. 

What is a short sale? Most buyers immediately think that this means that you have to close quickly and that is why its called a short sale. This is Not true. A short sale is when the seller is attempting to sell their home "short" of what they owe the lender. This typically means that there will be a long wait time. In most cases the seller gets with the listing agent and figures out market value and markets the property, once you have a contract it gets submitted to the lender for approval. This is where the lag time begins. It sometimes takes months for lenders to gather all the information and make their decision if it qualifies for approval. If it doesn't they may try and negotiate with the buyer for better terms, or they may just reject all together. This is the risky part of buying one, you may wait months to find out that it can't be approved. 

What do you look for to indicate if a short sale has a good chance of being accepted? 

1. How many loans are on the property? If there are more than one mortgage it becomes twice as hard because you have to get all second lien holders to approve, and in most cases they get nothing or very little. Unless the first gets paid off and it is only short on the second mortgage. 

2. Is this a primary residence? If this is an investment property lenders are less likely to accept the short sale in most cases. Owner occupied homes are much more likely to make it through the process. 

3. Is there a hardship? In order to qualify as a seller for a short sale there has to be something happen to force you to move, or not be able to afford the home. Wanting to relocate, or wanting to sell because you are under water will never qualify as a hard ship. They are typically looking for a job loss, death in the family, catastrophic injury, etc... Something out of their control that has caused a major problem. 

4. Who is negotiating the short sale with the bank? I typically like to see an attorney handling this. They know a lot more about the laws pertaining to short sales, and get better responses from the lenders. 

5. Do the sellers understand the short sale process and are they motivated? I have been involved in several short sales that the sellers were attempting a short sale in order to extend their time living in the home, or to give them time to process a "deed in lieu of foreclosure". In these cases you can get involved with one that the seller will never actually close on. In some cases the seller has negative legal and tax ramifications for doing a short sale. I like for the sellers to have consulted with an attorney and accountant prior to processing one that way they fully understand if it is right for them. If they don't find out up front, they may not end up closing in the end. 

6. Do you mind waiting to close? This is the most important thing, because if you have to close quickly then it probably won't work for you. If you can wait, then this might be the right kind of deal for you. 

As you can see there are a lot of things to consider before getting involved with one, but they can also be a great source of homes that the average buyer will avoid. Hopefully this info can help if you ever decide to purchase a short sale! 

Thanks Aaron