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Buying a short sale home: Share your experience

2,535 863 July 23, 2018 at 05:14 AM
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I am a first time buyer. Houses are really expensive by me. I found a listing that's a great price but it's a short sale. Reading up on it, short sales are a headache that can be worth it. I am in no rush to buy the property. This is to buy and rent out.

Have you bought a short sale? Can you share any personal experience from your purchase that could help me? Things differ from state to state please tell me what state you made the purchase in. I am in NYC.

I have reached out to the listing agent for some more info and a request for a private showing of the home.

At the listed price this a home we could afford to pay cash without a mortgage.

Thanks

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Have not bought one myself, but have looked at a number as an investor. Red flags everywhere usually. It can run the gambit. Generally you will not get a great deal for anything that is good simply because the bank does not have to do such a deal and can sell at the current market value on foreclosure anyway. If something is less than market, then it likely has issues which can range from fairly easy to fix things (as long as you have extra cash lol) such as outdated kitchens and bathrooms, faulty HVAC, etc, to serious issues like structural damage, water damage, mold damage, underground oil tanks, etc. and the bank is discounting it based on the fact that a buyer will have to make repairs or upgrades after the bank sells it.

Also, remember the whole point of a short sale is for the current owner to get out of the place usually when he is under water (and cut a deal with the bank to take less than what is owed and to avoid bankruptcy usually). So the bank has a vested interest in selling it to at least make up the difference of what is owed on the mortgage principal. They are generally not going to cut someone a bargain bin deal unless they have to or unless they figure the place is a hard sell in its current condition and they just want to be rid of it and cut their losses. In the case where the 500k home purchase has a 400k mortgage of which 350k is owed and the place is now worth 300k, the bank might be willing to accept a selling price of 300k...so what? That is all it is worth anyway and they could get that in foreclosure all things being in good condition. If the same house in the example needed 50k in repairs, then they would discount the price, maybe by more than 50k since now the prospective market of buyers dwindles to those willing to do repairs and flippers. Some banks will do repairs themselves if they figure it is worth their trouble (usually on higher end properties), but most just sell as is.

Good deals on good properties can be found, but they usually go to insiders in my experience.
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Last edited by YanksIn2009 July 23, 2018 at 06:49 AM.
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Quote from YanksIn2009
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Have not bought one myself, but have looked at a number as an investor. Red flags everywhere usually. It can run the gambit. Generally you will not get a great deal for anything that is good simply because the bank does not have to do such a deal and can sell at the current market value on foreclosure anyway. If something is less than market, then it likely has issues which can range from fairly easy to fix things (as long as you have extra cash lol) such as outdated kitchens and bathrooms, faulty HVAC, etc, to serious issues like structural damage, water damage, mold damage, underground oil tanks, etc. and the bank is discounting it based on the fact that a buyer will have to make repairs or upgrades after the bank sells it.

Also, remember the whole point of a short sale is for the current owner to get out of the place usually when he is under water (and cut a deal with the bank to take less than what is owed and to avoid bankruptcy usually). So the bank has a vested interest in selling it to at least make up the difference of what is owed on the mortgage principal. They are generally not going to cut someone a bargain bin deal unless they have to or unless they figure the place is a hard sell in its current condition and they just want to be rid of it and cut their losses. In the case where the 500k home purchase has a 400k mortgage of which 350k is owed and the place is now worth 300k, the bank might be willing to accept a selling price of 300k...so what? That is all it is worth anyway and they could get that in foreclosure all things being in good condition. If the same house in the example needed 50k in repairs, then they would discount the price, maybe by more than 50k since now the prospective market of buyers dwindles to those willing to do repairs and flippers. Some banks will do repairs themselves if they figure it is worth their trouble (usually on higher end properties), but most just sell as is.

Good deals on good properties can be found, but they usually go to insiders in my experience.
Thanks. So your suggestion is to avoid and to focus on regular home sales?
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dW and I looked at a couple short sales.

First, "owners" gave exactly zero shits about showing the home. They didn't bother to leave when we came by, place was a mess, etc.

Second, realtor said that in addition to the usual caveats mentioned above, banks are horrible at timing, take a long time to respond to requests, etc. IOW it's not going to be a quick process.
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Quote from Dr. J
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dW and I looked at a couple short sales.

First, "owners" gave exactly zero shits about showing the home. They didn't bother to leave when we came by, place was a mess, etc.

Second, realtor said that in addition to the usual caveats mentioned above, banks are horrible at timing, take a long time to respond to requests, etc. IOW it's not going to be a quick process.
I don't mind it taking a few months. I already know my whole process to buy and rent will take a while. Ive been looking for a few years and another year is not a big deal in the big picture. The "owners" have to decide when to show the home? I thought once its on the market the realtor would organize it and make sure it happens.
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Quote from dealnewb
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Thanks. So your suggestion is to avoid and to focus on regular home sales?

I would not rule them out, but if you think you are going to find a bargain you will likely be very disappointed. I would just concentrate on the usual sales. Short sale bargains may be found for people willing to flip it or who have contractors to do renovations and\or who know someone in the bank\the seller, but otherwise the likelihood an avg consumer gets a bargain is slim to none imo and it is full of potential headaches.

Just stick with the main stuff. If a short sale gets listed that looks good, no harm in checking it out, but a great deal of skepticism needs to be brought to the table on those. As was also noted, the people selling the place can also have absolutely no incentive to maintain it and if the bank does not give them good terms on a short sale they may look to damage or otherwise let the place go. I have heard of people actually removing the faucets, lighting, and even the kitchen cabinets before leaving on foreclosures or short sales. Or damage walls and floors just for spite.
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Quote from dealnewb
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I don't mind it taking a few months. I already know my whole process to buy and rent will take a while. Ive been looking for a few years and another year is not a big deal in the big picture. The "owners" have to decide when to show the home? I thought once its on the market the realtor would organize it and make sure it happens.

Depends...the bank may be in foreclosure in lieu of a short sale and the owners uncooperative\spiteful. Plus you have to realize that in many cases the bank sets unrealistic prices because they figure they can always get market in foreclosure. Additionally, if the owners feel their chances of getting out favorably are slim to none, they actually have an incentive to be uncooperative as they are likely living in the place rent free at that point and the longer the process goes on, the longer they live their free of charge until the bank finally forecloses and has them removed.
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Do foreclosures have the same issues?
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Quote from dealnewb
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Do foreclosures have the same issues?

Yes, though it depends on the situation\the amount of equity they have in the place and the market price. Someone who is being foreclosed on because they lost their job and now can't meet the mortgage but who has established a fair amount of equity in say 20 years of a 30 year mortgage in the place and who is not under water (meaning the house still holds par value or close to it), is not going to damage the place or do anything bad in all likelihood (they should have looked to sell before it got to foreclosure, but that is another matter). They will likely stand to get a fair amount back from the sale based on their equity. Someone who is only a few years into the mortgage and did not put much down has no such incentive and does not care at that point.

Short sales means the person is getting nada back\the house is worth less than the amount owed.
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Thanks.

I really need to read up a lot more on this. It sounds complicated.
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I purchased my house as a short sale 10 years ago. The only real problem was that the previous owners left the place a mess (trash in the back yard, hole in the wall, dirty, etc...). They didn't vandalize anything, just didn't take good care of the house. The neighbors said when they bought the house 5 years prior it was very clean and well taken care of. The house also got egged the day after I closed, I assumed it was by the sellers.

I don't remember any problems with the bank or how long it took, but I purchased the home when short sales were everywhere.
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Quote from Scratchy
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I don't remember any problems with the bank or how long it took, but I purchased the home when short sales were everywhere.
That was exactly the timing to buy, back between late 2008 and first half 2010. The next recession hopefully is going to be more epic than the last one now that everyone is borrowing when the economy is doing well.
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equity means absolutely nothing in a foreclosure.
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for those that hate spelling mistakes www.walmarts.comCool

bulb save money by checking your insurance every 2 years (and not every 20) Thanks Liberty Mutual for reminding me to shop. The $842 increase this year sums it up. Across the board increase for Ohio....whatever
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Don't waste your time with a short sale in this market.

1. You won't get a good deal on it.
2. It will take forever ranging from 6 months to 2+ yrs

If you still want to pursue it, hire an agent that specializes in short sales.
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Quote from dealnewb
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I am a first time buyer. Houses are really expensive by me. I found a listing that's a great price but it's a short sale. Reading up on it, short sales are a headache that can be worth it. I am in no rush to buy the property. This is to buy and rent out.

Have you bought a short sale? Can you share any personal experience from your purchase that could help me? Things differ from state to state please tell me what state you made the purchase in. I am in NYC.

I have reached out to the listing agent for some more info and a request for a private showing of the home.

At the listed price this a home we could afford to pay cash without a mortgage.

Thanks
what neighborhood are you looking at?
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