On the surface, short sales and bank-owned homes look like 'great deals.'
(PRWEB) January 3, 2011
Julie Montgomery, RE/MAX Masters, Inc., one of the top-producing realtors in Denver and Littleton, Colorado, advises buyers to avoid short sales, regardless of how good they look on paper. On the surface, short sales and bank owned homes look like great deals. In most cases, however, they are not. To help ensure that buyers find a legitimately good deal, Montgomery has created a list of eight reasons why short sales should be avoided.
What is a short sale? It’s when the seller is “upside down” on their mortgage. In other words, the seller owes the bank more than what the property is worth in today’s real estate market.
One of the biggest problems with buying short sales or bank owned properties is they are always sold as is, which can lead to costly maintenance issues and/or repairs down the road.
In addition, short sales typically take a very long time to close -- usually three and six months, if they close at all. It is not uncommon for the bank to foreclose during this period without ever reviewing purchase offers. In most cases, according to Montgomery, buyers are much better off buying from a real person rather than a bank or a lender.
Eight Reasons Why Buyers Should Avoid Short Sales:
1) Sellers Paid Too Much.
If a home sold for $400,000 a few years ago and is now for sale at $300,000, that doesn't mean the buyer is picking up $100,000 of equity for free. It means the seller paid too much in a rising market and now the market has fallen. It means the seller has no equity.
2) Sellers Borrowed Too Much.
Banks that were eager to lend money in appreciating markets sometimes allowed borrowers to over-mortgage the home, meaning the borrower's loan balance exceeded the value of the property. Appraisals are subjective, and not all appraisers will place the same value on a home.
3) Homes Sell at Market Value.
Lenders aren't naive or unaware of the value of a home. Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If a lender believes a better price can be obtained by taking the property back in foreclosure over a short-sale offer, the lender may hold out for a higher price. That price will be close to market value. Lenders accept short sales when the home is worth the short-sale price, which means market value.
4) Length of Time to Close.
Depending on when the Notice of Default was filed, the lender's back-log of foreclosures and how much paperwork the seller has already submitted, it could take a VERY long time to get a response on a purchase offer. If two lenders are involved, it even takes longer, and oftentimes, the transaction will not close.
5) Higher Buyer Closing Costs.
Because lenders rarely will pay for any extras like closing costs, buyers should be prepared to pay approximately 3% of the sales price out of pocket.
6) Lose Control of Transaction.
If a buyer wants to close escrow by a specific date, lots of luck with that. A short sale home closing process takes an indefinite amount of time. The seller's lender calls the shots, not the buyer nor the buyer's lender. If you are trying to close escrow concurrently with the sale of your home, it probably will not happen.
7) Little Seller Motivation.
When the seller discovers that the short sale effect on credit is close to that of a foreclosure, there is little incentive for a seller to cooperate with a short sale. Although sellers may qualify to buy another home in two years after a short sale versus five (with restrictions) on a foreclosure, some have no intention of ever buying another home again.
8) Most Important! You Make Money When You Buy, Not When You Sell.
Location, location, location is still the most critical factor when purchasing a home. “Buyers should focus on the best neighborhood they can afford rather than looking for the least expensive house available.” She added, “it’s also critical to hire a realtor (never a fee for buyers) to select an experienced agent who specializes in the areas they are considering.”
For more information about avoiding short sales or for information about homes and real estate in Littleton, Colorado, and the Denver metro area, please contact Julie Montgomery at RE/MAX Masters, Inc. or visit http://www.jmontgomery.com/.
RE/MAX Masters, Inc.
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