Short Sale SellersWhy Buyers May Not Want to Purchase a Short Sale
Here are top 11 reasons why home buyers may not want to purchase a real estate short sale:
1) The Sellers Paid Too Much
If the home is worth $100,000 dollars less today than a couple years ago, it doesn’t mean the seller is picking up the equity for free. It means that the seller over paid for the house in a rising real estate market which has now fallen and the seller most likely has no equity.
2) Sellers Borrowed Too Much Money
Bank and Lenders are eager to lend money in a appreciating housing market and will sometimes end up allowing borrowers to over mortgage the home by letting the loan balance exceed the actual value of the property. Appraisals are considered subjective as each evaluation may not yield the same value. Some appraisers are pressured by banks to appraise the home at the amount of home owner wants to borrow.
3) Strict Qualifications
Inexperienced real estate agents may try to push the seller into considering a short sale when the seller does not qualify. Sellers/borrowers must prove their financial hardship and submit evidence to the bank or lender for short sale approval.
4) Properties Sell at Market Value
Lenders are unaware of the value of your home as they will insist on receiving a comparative market analysis (CMA) or broker price opinion (BPO) to understand pricing in your neighborhood. If the lender feels that they can get a better price by taking the property back by going into foreclosure vs. a short sale offer, they will hold out for a higher price. Lenders will accept a short sale when the property is worth the short sale price or “market value”.
5) Property is sold “as is”
If the bank or lender agrees to the short sale, they will request the home is sold “as is” and will refuse to pay for the following:
-Repairs suggested in home inspection
-Pest inspections or work necessary to clear pest issue
-Roof certifications or roof repairs
-Home protection plans for the buyer
-Deferred maintenance
6) Length of Time to Close
Lenders are typically backed up due to the number of short sales and foreclosures crossing their desks. It could take as little as 2 weeks or as long as 2 months to hear an answer on a purchase offer. The short sale time line can take even longer if there are more than one loan on the property.
7) Lenders Can Change Conditions
Some lenders reserve the rights to renegotiate the terms of the short sale at the last minute. If there is a market change, new laws may pass or new information may be presented to the lender. They may attempt to make changes to the contract terms.
Lenders Discount Real Estate Commission
Since lenders are paying for the sale of the property, they will tend to want a discount when it comes to real estate agent commissions. The agent may end up doing two to three times more work than a traditional transaction and won’t be very happy about the change. If you agreed to pay your agent a certain percentage under the buyer broker agreement, you would be held liable for the difference the lender will pay and if your agent refuses that amount. Make sure to talk with your agent.
9) Higher Closing Costs to Buyer
Lenders will rarely pay for any extras on the deal, thus you will have to pay them. There are some cases where the lender will refuse to pay for standard short sale closing costs such as transfer taxes. If you want specific inspections for the property, be prepared to pay for them out-of-pocket.
10) Lose Control of Transaction
If you need to close escrow by a certain date, you may be in for a heartache. The short sale process can be extensive and long as the seller’s lender is the one calling the shots. If you are trying to close escrow at the same time as your escrow closing, it may not happen.
11) Low Seller Motivation
When the seller discovers that a short sale will effect their credit score similarly as a foreclosure, they may have even less incentive to cooperate with a short sale other than peace of mind that the financial nightmare has ended.