Short Sales – Know Before You Go

Knowledge Is powerEverybody loves a bargain. That’s why a lot of home shoppers in Los Angeles and Orange Counties are looking at short sales as a way to get into neighborhoods that they could only dream about a year ago. But there are a number of things that can go wrong in the short sale process. Knowing what some of these are can be the difference between successfully completing the purchase of your dream home or pulling your hair out in frustration.

If you have never heard the term “short sale” here is a quick definition. When a seller puts their house on the market for less than they owe on it, that’s a short sale. By default, this means that when these homes are sold the original lender is going to take a loss. All short sales need to be approved by the lender or lenders who will be taking that loss. By this, I don’t simply mean that your offer needs to be approved. The actual seller of the property needs to be approved too. If the bank thinks that the seller is hiding assets, or pricing the house too low, that can stop any sale dead in its tracks.

The first thing to keep in mind when looking at short sale properties is that not all neighborhoods are created equally. In some areas, there are many more sellers than there are buyers. In others, just the opposite is true.

In the areas with higher demand, you can’t make a ridiculously low offer and expect to get anywhere. Below market pricing of homes in desirable areas is actually a strategy used by realtors, sellers and banks to get bidding wars going. Even in this market, bidding wars for competitively priced properties are fairly common. In fact, if you are looking at homes on the West Side of L.A. or in the southern hills of the San Fernando Valley, there is a lot of competition.

This means that when you are bidding on a short sale property, you need to know a little about the neighborhood. What is the demand in the area? What are other homes selling for? Are there any problems with the neighborhood or the subject property itself? Are there any issues with the seller that may prevent an approval? Only then can you actually put in a bid with a reasonable expectation of success.

To make an offer on a short sale property, you need to be pre-approved for your loan. You will also need to provide a good faith deposit and proof that you have the funds for the down payment. Without these items, the lender approving the sale will never even review your offer.

Once your offer is made, it can take up to 90 days to find out if it has been accepted. You can withdraw your offer at any time prior to receiving written notification that the offer has been accepted. Once you withdraw an offer, your good faith deposit will be refunded. This means that even after you make your offer, it may be wise to continue to look at other property. Who knows, you may find an even better deal in a location that is even more desirable.

There are short sale bargains in this market but not everyone will be able to take advantage of them. The key to being successful in your bargain hunt is in knowing the market inside and out or partnering with a real estate professional who does.

by Jim Malmberg

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Jim Malmberg is an agent and real estate professional with SHORTsense.

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