5 Short Sale Buyer Missteps

Short sale buyers should take care when selecting a short sale or foreclosed property, as these homes may not be as good of a deal as they appear.  

Here are five common missteps of buyers purchasing short sale properties:

Disregarding Property Shortcomings for Short Sale Buyers

Many homeowners do not maintain the same degree of care for their property once forced to vacate it.  In some cases, homeowners may even deliberately inflict damage on the home for various reasons (such as spite and apathy), decreasing the worth of the home and making it less attractive to buyers. 

As with foreclosed properties, short sale homes may come with damage caused by owner neglect, including leaks, mold, termites, et cetera.

Many states do not require that banks disclose this information to the potential short sale buyer, being exempt from providing a traditional disclosure statement often required by the seller. 

These statements must present an accurate assessment of the condition of the property, covering any damages which require repair before habitation.

Without this disclosure, short sale buyers may not be aware of the adverse conditions of the property. For instances, banks will not provide any information regarding whether the home was constructed from defective materials. 

Although short sellers must submit a disclosure form, these homeowners will be attempting to expedite the sale as much as possible, focusing more on the mortgage transaction rather than reparation of the property. 

Be prepared to ask many questions regarding the home’s condition, and never disregard any potential issues.

Skipping Home Inspection

Accompany the inspector when he or she performs the home inspection on the prospective property. During the inspection, potential short sale buyers may be able to secure the property for a substantially reduced price simply by learning more about the home’s disadvantages and shortcomings. 

Inquire about repair estimates if the inspector discovers an issue. Cautious borrowers may opt to perform the home inspection before making an offer; although the majority of inspections are enacted after an offer has been presented, a pre-offer inspection allows home buyers to walk away without any formal commitment.  

If you suspect the house to require expensive repairs or rehabilitation, consider hiring a specialized inspector to look for particular problems such as termites, mold, and structural damage, especially in areas where these problems are commonly occurring.

Consult the neighbors for any additional information regarding neighborhood housing problems or further considerations which might affect your willingness to purchase the property.

Ignoring Legal & Insurance Information

Since bank-owned properties do not require the degree of disclosure which properties require, a short sale home buyer must do some research into the home’s condition before making an offer, particularly concerning insurance and legal status. 

For instance, buyers who purchase homes within a flood zone will be forced to pay thousands annually in added insurance charges and may find it more challenging to resell the home.

Furthermore, future short sale buyers should make sure that the previous owners’ renovations have been enacted with the necessary permits and done so with approval. Otherwise, the city may be able to fine the buyer, even if the previous owner performed the offending remodeling projects.

Moreover, without full disclosure, buyers may not be aware of any nearby construction or renovations which would normally be divulged by the seller. Accordingly, always ask questions, with the goal in mind to know everything relevant to the sale and to avoid any unwanted surprises.

Allotting Too Little Time

Purchasing short sale properties can take a considerable amount of time. During the short sale process, the lender must ultimately approve the transaction and consequently accept less than the amount owed on the mortgage. 

Lenders do not have any obligation to allow a short sale other than to avoid the expenses involved in a foreclosure. For some short sale home buyers, appealing for lender approval can significantly impede the sale process. Not only that, but some banks cannot even process short sale approvals due to the high number of foreclosures being filed currently.

Buyers should remain flexible and patient, as the procedure can take months.  Conversely, if you are considering a short sale, do not expect to complete the sale within the timeframe of a standard home purchase.

Making A Poor Selection

Consider the property from the perspective of an investor, rather than a home buyer getting a discount.  It’s imperative to assess the home’s condition, the property’s price, and the market value. 

While short sale properties often sell with a considerable price discount, many additional factors affect short sale properties, and homebuyers should avoid overlooking any issues due to the advantageous home price.

Short sale buyers should exercise caution and attempt to judge impartially as they thoroughly consider each potential home and understanding every facet of the purchase and short sale process.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.