Do you think about adding another investment asset to your portfolio? A short sale can be an excellent way to secure good real estate deals.
A short sale refers to a property being sold for less than the outstanding balance on a mortgage. Many homeowners need short sales due to job losses or excessive borrowing.
A short sale differs from a foreclosure. This is when the seller’s lender seizes the property and then makes it available for sale. Many homeowners want to sell their house quickly in order to avoid foreclosure.
While short sales offer investors the opportunity to purchase property at lower prices than the list price, short sales make it difficult for buyers to make offers on short-sold houses. Buyers should be aware of potential pitfalls in making a short sale offer.
These are 7 tips that will help you make an offer in a short sale.
Do Your Housework
Real estate investors should do their research before making an offer to buy a short-sold house. Listings for short sales are typically priced below the market price to attract buyers. The bank may not accept a lower price, however.
An investor should conduct a comparison market analysis using real-estate comps. Compare prices and inspect similar properties. Banks are willing to accept short sales of properties between 5-10% under the market value.
Also, talk with the agent to see if there have been any short sales and what the seller would like to recoup. You also need to know if the price has gone up or down. A neighborhood analysis is necessary to make sure the area is worth your investment. This information is essential in order to make an offer on a short-sale home.
Find out if the Short Sales are Lender Approved
Ask your lender if they have approved a short sale. Even though many properties are listed as short sales, it doesn’t mean all transactions will be completed as one. Sometimes the seller’s bank may foreclose in an effort to obtain a better deal.
Before they can make an offer on a property, real estate investors should confirm that the lender has approved a short sale.
Earnest Money Deposit
Earnest money deposits are a sign of investor seriousness in purchasing a property. Many real estate investors only require a minimum deposit, but short-term buyers who are serious about winning the sale should put down more.
Banks will pay 1-3% deposit on the sale price to attract their attention. Once the short sale has been approved, buyers may deposit their funds in trust accounts.
Manage Your Financials
Short sale sellers must determine if the real estate investor is able to afford the property. If you have strong financing, a short sale is possible.
You have two options: you can buy the property cash or you can get pre-approval by a bank to increase your chances for being accepted. Pre-approval letters basically promise the lender that they will provide a mortgage loan for a specified amount.
This letter is important even more than the prequalification letter, because it shows that you have already been vetted for the loan and are approved.
Don’t Ask for Contingencies
Investors may negotiate contingencies to minimize closing costs and avoid paying fees. Your contingencies for short sales will not be approved by the lender because they already have losses. This is especially true when there are other offers.
It is not a good idea to ask for seller-paid warranties on your home, roof certifications, and pest inspections. Major repairs or upgrades should not be negotiated, even if they are obvious. You will accept the property exactly as it is.
Be Patient
After you have signed a deal with a motivated buyer the seller’s bank must approve the short sale. The lender will examine your offer and decide whether they are able to absorb the loss. The lender will also examine your financial situation in order to determine whether you can afford the short-term property.
Approval can take up to two months for one lender. Multiple lenders could make it take as long as four months.
Many buyers lose patience, and they walk away before the approval process is completed. Show good faith by telling your seller that you are willing and able to wait until the process is completed.
Working with professionals
Real-estate professionals can help you increase your chances to make an offer on a short sale. A professional real estate attorney is needed to help you with short sale negotiations as well as handle all paperwork. Work with a professional realtor.
An agent can assist you with negotiations and show you short-sale property for sale. An agent will perform a title check on the investment property to determine if there are any liens attached. If there are multiple lien holders, the short-sale process may become complicated.
Conclusion
A short sale offer can be fraught with danger. Acceptance of a short sale offer may be denied. This could result in you waiting for weeks or even months. You could be offered, but on poor terms.
The cost of repairs is the responsibility of the investor since the property has been purchased as-is. You can make a profit on your real estate investment by doing your research and following these 7 tips.