There’s Nothing Short About a Short Sale
For a buyer, there isn’t a bigger misnomer in real estate than a short sale, because buying a short sale can be a long, frustrating process. That’s not to say that you shouldn’t think about buying a short sale, but there are some things to keep in mind before wading in. When a homeowner can’t make the mortgage payments, they’ll often strike a deal with the bank to sell the property at a loss (that’s the “short” of it). As a result, the bank loses money and has to pay some fees, and owner’s credit is ruined. It’s lose-lose for both parties, but it’s less bad than foreclosure.
When they come back to the market, short sales are often priced well below what they previously sold for or what true market value would dictate, but that price isn’t necessarily a reflection of reality. The average U.S. short sale closed for 23% less than market rate in 2012, according to RealtyTrac. In order to get a lot of offers, listing agents for short sales will basically pick a number out of the blue, Realtor Michael Vrielink from ZipRealty told the Chicago Tribune a while back. If you do bid on a short sale and your offer is accepted, it can still take several months to close on the home. The process is drawn out for a number of reasons. First, lenders aren’t accustomed to dealing with so many distressed properties (on the rise nation-wide to 22% of all U.S. home sales in 2012), and they can be overwhelmed with the sheer volume of applications. Also, mortgages are often owned by several different parties, all of whom must come together in order for the sale to go through.
Consider also the climate of your particular housing market. For instance, according to RealtyTrac’s 2012 Q4 Foreclosure & Short Sales Report, Chicago is a better place to buy an REO property (real estate-owned) than a short sale. Local REO sales increased 43% in Decemeber 2012, year-over-year, at an average 51% discount off non-distressed sales. And the local inventory remains huge. Chicago’s average REO sales price at year’s end was just $116K, and took 175 days to close. These figures landed Chicago in the RealtyTrac’s “15 best markets for buying bank owned” list. But, as with every prospective home purchase, let each specific property and its condition do the talking.