How to Buy a Short Sale House for better profit and instant equity

I have done short sales on houses successfully for years. Here are a few tips if you are looking to buy a home that is a short sale.

Difficulty: Moderately Challenging

Instructions

1. A short sale is simply a house where the mortgages and liens total more than the house will sale for in today's market. This is one of the best methods as an investor to buy at a discount. It will however take patience and different skills than a normal strait forward purchase.

2. It is up to you if to use a Realtor or not to represent you. As I buyer I would every time. Most banks that hold a mortgage will only do a short sale if the house is listed so they know they are not short changed with it not being shown to potential buyers. You will not be allowed to buy a house being sold by a relative or friend. The bank wants an arms-length transaction. As a general rule the bank will also not want the same agent to represent the buyer and the seller (a limited agent) in a short sale situation. Find a real estate agent who knows the short sale process.

3. Have your financing in place. In today's market lenders generally want to see a letter of approval or proof of funds to accept a buyer. They don't want to be a month down the road having held off the foreclosure process on a home and have you not be able to perform on the contract. Get your financing as in place as possible before you offer.

4. You will need patience. A short sale often sells to an investor. If the listing agent on the house has done the work and gotten a preliminary approval to it can happen quickly. I did one as a cash sale in 2 weeks as the home had already been reviewed and approved and the bank had a BPO or independent Brokers Price Opinion done, but 3 to 6 months is more common. The banks move slowly. They hope to get the buyer to find money to catch up, but also know that stalling may up your offer. They still have the right to foreclose and sell the home for close to market price. A short sale only benefits them because they don't have the time and expense of foreclosure. It saves them the time on the market after foreclosure to find a buyer.

5. If you are not an investor or are buying for yourself remember it may take 6 months to complete. It is a long process with the seller of the house needing to prove to the bank they have no assets and have a hardship like job loss or medical expenses that will prevent them from completing their contractual obligations. If you are buying for your own residence plan on 6 months and be ready at anytime. You can be a half year into the process and have the homeowner get a loan or gift from a friend or relative and catch up payment. The bank will not approve a sale at this point and you do not have a contract to enforce as short sales are subject to 3rd party (bank) approval. You may be dealing with several loans that all need to approve the amount they will accept. If one note holder will not settle the home may go to foreclosure even after months of effort. If you are buying your own residence you may be better looking elsewhere or continuing to look while you wait.

6. One last tip is when offering on a short sale have the earnest money available in a separate account. You will probably need to write a check to be held by the brokerage or title company. Have in the contract that the check is to be deposited only upon bank acceptance of the terms and price of the sale. You can back out of the deal and cancel if something is not working out or you find a home with fewer hurdles. NEVER give earnest money directly to a seller in a short sale. They are in financial straits and if they use the money you may never get it back if the deal falls through. This is true for me in any real estate sale unless I am certain of what I am doing as a buyer and am making the earnest money non refundable to have a strong offer. I would NEVER do this on a short sale and only rarely on a residential property. Good Luck

[Homebuilder]

on 1/30/2009 Very nice article. You laid it our perfectly. I also buy short sales all over the US. I am a cash buyer and have proof of funds. Email me at [e-mail].

[juliebmack]

on 11/26/2008 This is great. I think I passed up on a good house for a great deal because I lost patience waiting on the short sale. It does take a while! 5 stars

[showpup]

on 11/16/2008 I have always wanted to get into real estate. Either as a flipper or a real estate agent. Great article for laying out how to profit from a short sale. 5 stars

[meacham01]

on 11/15/2008 Short sale home! Interesting article. These days , an invester should see plenty of these available...no?
I may be interested in buying, but where I live in Austin,Texas, the market has slowed dramatically for the sell of new homes but the employment % is still lower than the national average ( Austin, Texas approx 4%