How to Buy a "Short Sale" House

Now is the time to buy and get a great deal in the real estate market

During a "short sale," a home is being sold for less than the owners owe for the loan on their house. In most cases, the house is upside down in value, meaning it won't appraise for the current market price. Short sale homes don't necessarily have anything wrong with them; their owners simply need to sell for one reason or another. The following provides information about how to go about negotiating the best price on a short sale home.

Things You'll Need

• A licensed Realtor

Instructions

1. Choose a licensed Realtor that has worked with short sale properties before. One with this experience in this area will be able to better help you navigate the short sale market and work with the sellers and their bank when the time comes.

2. With your Realtor, find a property for your residence or investment that is being short sold by the seller. Properties may be advertised this way or not, but the longer a property has been on the market, the more price reductions it may have. Your Realtor will be able to identify these properties, as well, as short sales are required to be listed in the agent comments of the property listing that's posted to the Multiple Listing Service.

3. When you find a property, make an offer. You may have a house you want, which is listed at $295,000. The owners may have paid $350,000 for the property and are forced to sell for whatever reason. The owners and their Realtor may know the appraised value -- let's say $300,000 -- and what the bank is willing to take, but are not obligated to tell you. Your offer will need to be as close to the appraised value of the property as possible. Understand that the owner's lending bank will be the deciding factor in whether or not your offer will be accepted. Also know that the owner has the right to reject your offer if he feels it is too low to present to his lender. If you make an offer for $250,000, the owner can ask the bank to approve your offer, but if the home is appraising at $300,000, the bank is likely to reject it.

4. If your offer is rejected, you can make another higher offer; however, do not waste time making offers with very small increases. This will waste time and you may lose the sale. Make a fair market offer. A fair market offer still means you are getting a good deal and saving lots of money on your purchase. If the home is appraising at $300,000, the bank will likely take close to that, so offer within roughly $25,000 of what property appraised. Once your offer is accepted by the bank, you should be able to close on the home within 30 days if your finances are in order.

Tips & Warnings

• Do not waste your time with an offer if it is extremely lower than the short sale listing price, like $150,000 for a listing of $300,000. Even if the seller submits the offer for bank approval, the bank is under a legal obligation to obtain a fair market value for the price of the home, otherwise the bank can be held liable for the difference. Therefore, short sales are not a "buy it for nothing" deal. But you can still negotiate a deal for much less than the buyer paid. Sort sales are granted by banks when the seller has a hardship. Since the seller is in a tight bind and fighting off foreclosure, he can still be held responsible to the bank for the difference in the sale price and the unpaid amount on the original loan. Sellers generally will not entertain pennies on the dollar offers. Many banks will not even respond to your offer if the price is too low. They are simply overwhelmed with offers on properties and do not have the time to respond if they feel the offer is not viable. If you have not heard back from the seller regarding their bank approval in two weeks, it is safe to assume that the bank has not even entertained your offer and you can resubmit a higher offer at that time.

• Always use a licensed Realtor when buying property. Their expertise will help you through the entire purchasing process without having to deal directly with a seller. If you have legal concerns about a contract, seek the assistance of an attorney that specializes in real property.

References

• Lawyers.com: Buying A House In A Short Sale