Finding Short Sales for Investing
What is a Short Sale?
Short sales occur when the mortgage balance is more than the value of the property. If the home were to be sold, the selling price would not be enough to pay off the mortgage. If the sellers are unable to pay the difference, the lender may, or may not, agree to accept less than the total amount. If the lender agrees to accept less, this results in the lender being shorted, hence the name short sale.
While these properties look appealing to many buyers because they think they are getting a deal on a home, it is not always the case. From the perspective of an investor - choose your properties wisely and consider the time and effort as compared to the possible profit before pursuing these properties.
The process for purchasing a short sale can be lengthy and not always productive. When you are interested in a short sale property, you will begin by making an offer to the seller. An agent will help you determine a reasonable offer. Once the offer is accepted by the sellers, it must then be approved by the bank. This can take a long time, up to six months, to receive a reply. Over 50% of the time, the reply is “No.” As an investor, this is a lot of time and energy that can be put into other properties you can purchase and resell in the time you negotiate one short sale.
However, if you feel short sales may be a viable option for you to explore, here are the steps you need to take to find those available in your area.
How to Locate Short Sale Listings
Unlike REO properties, there are no special listing agents for short sales. There aren’t even special listings in most cases to separate short sale properties from other properties on the MLS listings. Any real estate agent can list a short sale, but there may be information within the listing that tells the prospective buyer that this property is in the pre-foreclosure stages and/or is a short sale option.
Hidden Short Sale Clues
This can be more of a challenge as listings are not always labeled clearly that a short sale is available. This is due partly to the lenders wanting to keep it quiet so that the price of the home is not affected. There are however, several ways to identify short sale listings. As you are searching through possible listings, look for key phrases in the descriptions indicating that:
- bank approval is required
- property is in preforeclosure
- a Notice of Default has been issued
- time is needed for a response from bank
- the property is going to be auctioned
A real estate agent who is experienced in working with short sales will also be an asset in the search process. They will have knowledge of where to find these details and where to look for short sale labels if they are available. (Sometimes they can be found in the status modifiers.)
Once you locate a property that you are interested in, your agent will help you through the necessary procedures. An agent who is experienced in short sales is absolutely a necessity to help navigate the process in an efficient, productive manner.
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