Recently, my wife and I decided it was time to get into a home. With the market the way it is, the timing is just right. We met with a real estate agent who immediately sent us a list of homes. As we looked down the list, we found a couple of homes that seemed too good to be true:
2257 sq ft | $169,000 | 2 Car Garage | 2006
2167 sq ft | $160,000 | 2 Car Garage | 1977 | .18 acres
Naturally, we were very excited to see such great values standing out above all of the others. I would consider $100/sq ft a really good value, and these are around $75. So I called up my real estate agent and we scheduled an appointment to go see both houses. I was particularly impressed with the town house and kept looking around for the catch. There didn’t really seem to be any. There had been a mud slide a few years back that took out some units, but that couldn’t be it because most houses in the neighborhood are going for over $200,000.
Finally, in conversation, my real estate agent mentioned the fact that both homes are ‘short sale.’ I vaguely remembered reading that in the description of the home, but didn’t think much of it. ‘Short sale’ just sounds like a term for a house that needs to be sold quickly. As he mentioned this fact, he could tell that neither my wife nor I recognized the significance of this fact, so he explained it to us. He said “It’s called ‘short sale’, but that doesn’t mean it’s a short process. In fact, it’s quite the opposite.” He then continued on to explain what short sales are.
A Short Sale is what you call a situation where an owner of a mortgage wants to sell a home, but owes more on the mortgage than what the home is worth. Technically, the house still belongs to the bank, so they could just foreclose on the people and kick them out of the house.
The problem with that is that they would then have a vacant house with no mortgage payment coming in. The bank would then have to sell the home anyway to get any value out of it. It’s easier for the bank to just let the occupants sell the home and take the hit now, instead of the bank selling the home and eventually taking the hit later anyway.
So what does all of this have to do with the buyer? You might think it doesn’t matter what the reasons are for selling a house, a price is a price. In fact, the process is much different than a regular home for sale.
In most cases, a price posted is what the seller is posting as what they are willing to give you the home for. The seller ultimately makes the decision. In the case of a Short Sale, the banks has the final say. The seller will get nothing out of the deal, they just want to get out of the house. Home prices on Short Sales are low because the seller knows that the lower the price is, the more offers they will get. But these offers have to go to the bank for approval.
Just because a seller is willing to sell you a home for cheap doesn’t mean you’re going to get the sweet deal. If the bank doesn’t want to to sell the home for that cheap, they will reject it and the price will go up and the process will start all over again.
If that’s not enough, it can take up to six months to even get a response from the bank. Because they’re just going to lose money on the house anyway, the bank isn’t in a hurry to sell the house, so your offer will go on a stack of papers that somebody will eventually get to. Finally, to top it off, you there might be several offers sitting on that stack above yours! And, oh yeah… banks also don’t cover closing costs.
Today my wife and I decided we might as well put an offer down on the town house just in case. We aren’t in a big hurry to get into a home, so we figured we might as well give it a shot. I went onto the internet to look at the listing one more time and found that the price had jumped from $169,000 to $183,000! Next time you’re looking for a home, do yourself a favor and avoid Short Sales. They’re not as great as they look.
Recent Comments