Reader Question: “A friend of mine just purchased a short sale property, and he said he would never do it again because it took such a long time. I’ve heard other horror stories about the process being slow. Why does buying a short sale home take so long to complete.”
You have heard correctly. While the process occasionally moves quickly, it’s usually a slow one. This is something people should know before they try to buy a short sale property in the current economy. I’ll talk about why it takes so long in a moment. First, I want to explain what a short sale is, for those who are not familiar with the terminology.
Definition — A short sale is a process where a mortgage lenders allows a homeowner to sell a home for less than they owe on the mortgage loan. It is often used to help both the borrower and the lender avoid a foreclosure process, when the borrower has fallen behind on payments. The goal here is to sell the home as quickly as possible, which is why short sales are typically priced below market value. That’s why these properties can be a good deal for home buyers.
With that being said, anyone thinking of buying a short sale home needs to (A) understand the process and (B) have a lot of patience. You might be one of those lucky people who zips right through the process with no delays. But in reality, you’ll probably find that it takes longer to buy a short sale property than a regular home.
Why It Can Take So Long
With that definition out of the way, we get to the question at hand. Why does buying a short sale take so long? The shortest answer is that there’s a complicated approval process. When a homeowners sells a home in the traditional manner (for more than they owe), the mortgage lender knows it will be paid in full for balance. So their approval is not needed — as long as they get their money, they’re happy.
But in the short sale process, the home is typically sold for less than the borrower owes. So the lender will need to approve the sale. And this is where the process can slow to a crawl. You’ll actually make your offer to the bank instead of the homeowner, and on average it takes two months to hear back from them. They might accept your offer, or they might make a counteroffer.
A lot of buyers also complain that they’re left in the dark during this time, without being given any information until the acceptance or counteroffer comes back.
Is buying a short sale right for you? That depends on how long you’re willing to wait. You could save a lot of money through this process, because short sales homes are sold about 10% less than market value (on average). But you’ll have to wait longer than you would in a regular transaction.
Most lenders are working hard to improve their handling of short sale offers, and to turn them around faster. But you should still prepare for the worst — a process that could take anywhere from three months on the short end to six months on the long end.
Join a Short Sale Tracking Service
If you are serious about buying a short sale home, you should sign up for a foreclosure tracking service. Here’s why. By their very definition, short sales are designed to sell quickly. That’s the whole point of this process. So if you want to buy one of these properties, you have to move fairly quickly.
This is why a tracking service is so helpful. Remember, a short sale is not a foreclosure — it’s a technique used when the borrower is in default (falling behind in payments) but has not yet been foreclosed upon. So it’s harder to find out about a short sale than a full-on foreclosure.
However, by signing up for a tracking service like RealtyTrac, you’ll be among the first to know about homes in default and short sale opportunities in your area. You can find a handful of these services online, but there are only two that I recommend to my readers. RealtyTrac is one of them.
Sign up for a free trial at: www.RealtyTrac.com
Speed and convenience are the key benefits of joining a service like this. If you want to buy a short sale in your area, you’ll need to stay on top of the market. You need to know about pre-foreclosure homes that might turn into short sale opportunities, and you need to know about them as soon as possible.
There are two ways you can stay on top of your market. You could keep tabs on foreclosure filings at your county courthouse (which is a slow and cumbersome process), or you could have this information sent to your email inbox (the smarter approach).
Conclusion and Going Forward
Buying a short sale can take longer than a standard real estate transaction, because the bank is part of the approval process. In most cases, you would make your offer directly to the bank, and you might not hear anything back for a few weeks depending on their backlog. With that being said, you can also save a lot of money by buying a home, and those savings often make up for the wait.
So if you have the patience and flexibility for what might be a prolonged process, and you’d like the opportunity to save thousands on a new home, then short sales might be the right option for you. If you decide to move forward, save yourself some time and energy by joining a foreclosure tracking service like the one I’ve recommended below:
Sign up for a free trial at: www.RealtyTrac.com
I hope you’ve enjoyed this guide to buying short sale homes, and I wish you all the best in your real estate process. Good luck.