We have all been hearing and reading about the rise in home prices over the past several months. While this may be welcome news for sellers, it can be daunting for future home buyers.
The rise in home prices has provided more opportunities for families that have been looking to sell their homes and relocate for a variety of reasons. This also equates to a lower level of inventory of short sales.
Many homeowners that saw their property values decrease in the not too distant past were not able to sell their home and pay off their current mortgage debt. This alone was also a contributing factor to the real estate market decline when you factor in, less sales and less re-sales.
Typically when someone sells their home, they will most likely turn around and purchase another. It might be within the same geographical area or perhaps in another state, depending upon their job situation as well as the needs of their family.
If a person sells their home as a “short sale” or loses their home as a “foreclosure” they may not be able to purchase another home for a period of at least 2 years.
However, there might be some good news for you. Last year, the Federal Housing Administration instituted a new program designed to help people to be able to purchase another home after 1 year following a bankruptcy, foreclosure or short sale. Let me know if you’d like additional information about this program and I’ll be glad to help.
As with any real estate transaction, there are risks involved. A short sale or foreclosure home sale has some added risks that you need to be aware of. If the home owner has some outstanding bills owed for previous home improvements and they’ve yet to be documented and classified as a lien against the home, the new owner might be inheriting these obligations. You should always purchase an “owner’s title insurance” policy to help protect you against any unknown liens in addition to a variety of other reasons.
I have a lot of experience with selling foreclosures as well as short sale homes. The majority of my experiences have resulted in very satisfied clients and little to no issues. However, not all of these types of transactions have ended so nicely. Read below for a few “real life” experiences.
I was the “listing agent” for a home in Miamisburg Ohio a few years ago that was being marketed as a short sale. The home was one of the filthiest and disgusting houses I’ve ever seen. However, I had an obligation to my client’s to help them get their home sold before it became a fully blown foreclosure.
I spent countless hours coaching my clients, taking photos (with nose plugs on), marketing the property, placing it on numerous websites, driving to and from for showings, hours of phone conversations with the bank that was holding the mortgages and so on and so forth.
The home was located in a very desirable location and the seller’s bank instructed me to price the home very low in order to generate interest. It worked! I had 3 full price offers within days of marketing the home.
The bank instructed me to consult with the home owners and submit the best offer that was on the table. At that time, the home owners disclosed to me they had consulted with their attorney and had been advised to remove the home from the market and include it in their bankruptcy proceedings instead. (I had no prior knowledge of them seeking bankruptcy protection)
So, after spending all of the time I had involved and not to mention the other agent’s times involved, we were all at a loss. The home was removed from the market as instructed and everyone had to move along.
Another situation was when I was the “buyer’s” agent. My client was sort of in a hurry to find another home as his lease on his apartment was up for renewal in about 5 months. We viewed several homes and traveled several miles in pursuit of his new home.
After a few weeks of looking at homes, we found a beautiful newer home on an acre in Warren County. The home was being marketed as a short sale. I informed my client that he was playing with fire if he was going to submit an offer on a short sale with having a deadline on his lease of 4 months away.
He decided to write an offer anyway. He wanted the home very badly as it was by far the nicest home that we had toured and it met all of his family’s needs. It was also very well priced, so in my client’s eyes, how could he go wrong.
As with any short sale offer that I write, I protect my client’s best interests by inserting verbiage into the purchase contract that deposit of earnest money, home inspections nor an appraisal will be done until we have 3rd party (bank) approval. (this way, my client is not spending money on anything, until we know that we are good to proceed)
The buyer’s “mortgage process” does not begin until we have 3rd party approval either. (this process alone can take anywhere from 4-6 weeks). So, by the time you wait to receive 3rd party approval and then get your “clear to close” on your purchase, it will be a matter of several months or longer from start to finish.
Well, much to my surprise, we received 3rd party approval very quickly. (2 months) It was one of the fastest short sale approvals that I had been involved with. So, needless to say, the buying side was very excited and ready to proceed.
Once 3rd party approval is given, the home owner is to sign a few final documents to make everything official. After a few weeks had passed, the buying side was losing patience after numerous requests of me to the listing agent to provide official approval.
After several more days passed, the listing agent called me with the grim news. After his numerous attempts to contact his client (the seller) had failed, he decided to make an unannounced visit to the home. At that time, his client informed him they never had any intentions of selling the home at all. The only reason they had listed the home as a short sale in the first place was a very ugly plan of the home owner to stall the foreclosure process so they could continue to live in the home for free for several months longer.
Something else that a buyer needs to understand about short sales. Just because the listing agent has reduced the price of their listing to a certain amount of money does not mean the 3rd party will grant approval. If there are more than one mortgage lender involved, this can definitely add more potential issues to the approval of the purchase transaction.
Example: One of my client’s wrote an offer on a short sale that had been reduced in price on the MLS to $90,000. He wanted the condo very badly as it was in very good condition in an awesome location, so he offered the full asking price.
Later that day, the listing agent informed me that he had received another offer on the property and his seller’s lender had instructed him to ask for “highest and best” and they were to submit the H&B offer to the bank.
Again, my client wanted the home badly, so he raised his offer to $100,000. Great news! His offer was the highest and best. So, the listing agent submitted it to the 3rd party and after a few weeks of waiting for an answer, the 3rd party replied with; “we won’t accept $100,000, but we will take $110,000”
My client was so furious by this time, he told me to let them know where the bank could put their $1110,000. So, needless to say, my buyer and I set out once again to find him a suitable home.
Hopefully, these real life examples of what might happen with a short sale home purchase has shed some new light on the subject for you. Bottom line: Are you in a hurry to find another home and get moved in? Avoid short sales.
Want to work with a knowledgeable and experienced Realtor? Give me a call!