BUYER ARTICLES
Investors & Short Sales
Is it a winning combination?
What's the best way for real estate investors to buy short
sales?
At the start of 2013 short sales continue to be a very large part
of the marketplace. According to the National Association of
REALTORS® short sales represented
10 percent of all November transactions and with good reason:
the typical short sale was priced at a 16-percent discount when
compared with similar properties which sold at fair market
prices.
In some cases short sales are available at discount not because the
property is physically damaged, but because the finances of the
owner have eroded over time or the owner simply wants to move. As a
result, it's possible to find short sales which appear
indistinguishable from other homes on the block and yet destined to
sell at discount.
But what's the best way to find short sales? Work with an
experienced real estate sales professional that understands the
process. Here's why: There is no requirement for a lender to agree
to any short sale offer. None. The result is that lenders must be
sold on the idea and that takes an experienced agent.
The discounts associated with short sales do not come instantly or
automatically. Those lower prices paid by savvy buyers are often
the result of complex negotiations not just with owners but with
lenders as well.
In the case of a short sale the borrower wants to sell the property
for less than the sum of the existing mortgage debt. As an example,
imagine that a property has an existing mortgage balance of
$200,000 and the owner can only get $170,000 from a buyer. There is
a $30,000 difference between the mortgage debt and the gross amount
the purchaser is willing to pay, meaning that the transaction must
be subject to approval by the lender because it is the lender who
will take the loss.
In the old days before the mortgage meltdown lenders would rarely
agree to accept any loss from a transaction, but with home values
still
15 percent below where they were in 2007 lender views have
changed. A loss from a short sale might be acceptable under five
conditions:
- First, the short sale loss is less than what the lender might expect from a full-blown foreclosure auction on the courthouse steps.
- Second, a short sale must be faster than a foreclosure, a process which can drag on for months and even years in some jurisdictions.
- Third, the short sale must be an arms-length transaction and not a secret deal to return ownership to the borrower, an arrangement which can be prosecuted as fraud if discovered.
- Fourth, the lender will want to know if the seller has other assets which can be used to satisfy the debt.
- Fifth, the lender will check the market to assure that the proposed contract represents the highest and best available offer.
Speak with your nearest Carrington Real Estate Services sales professional for additional information, listings and market trends. After all, there could be a short-sale discount out there for you.
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