The Upside to Buying a Short Sale

Benefits for Short Sale Buyers

reasons to buy a short sale
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Need reasons to buy a short sale? Tell any of your friends that you're buying a short sale, and you will probably get looks of pity and offers of sympathy. Tell your relatives that you're buying a short sale, and they might clasp their hands over their hearts in disbelief. Tell your coworkers that you're buying a short sale, and they might laugh at your misfortune. Almost everybody knows somebody who was burned trying to buy a short sale.

But there are benefits to buying a short sale that people don't think about. Most people tend to concentrate on the drawbacks of buying a short sale. Also, there are plenty of reasons to not buy a short sale, the biggest problem being the waiting period. It takes too long to get short sale approval.

However, if you can get over the hurdle of the waiting time, and you can live with the fact the short sale might get denied, you may be a perfect candidate to buy a short sale. That is, if you can find a short sale to buy, as they are less common than in the past.

Reasons Buyers Seek Short Sales

Home hunters typically buy a short sale for the same reason that other buyers purchase a home—they like the home. The fact that it's a short sale might complicate the issue, but the motivating factor is the same for all home buyers.

A secondary reason buyers like short sales is that the price makes it worth the hassle. These buyers are seeking a good deal, and there are sometimes bargains to be found shopping for a short sale. However, not all of those sale prices are real.

Be careful, as you could be chasing a dream that will never materialize if the home is priced incorrectly or the short sale agent has no experience.

How Sellers Price Short Sales

You are likely to get a better price on a short sale than you are with a regular seller who has equity because most sellers have a certain, sometimes unrealistic, perception of their home's value and are not concerned with modifying their price to fit your budget. There are some sellers who cannot accept that their home is not worth as much as they assumed. Although they may realize they are underwater, they do not want to feel like they are giving their home away. These are unreasonable sellers.

Not every short sale seller is reasonable. Some of them are brutally wounded after having survived botched loan modification attempts, and they are not strong enough to face the harsh realities of a short sale.

Reasonable sellers know that a short sale is based on bank approval. Instead of paying for an appraisal, the bank may pay an agent a small fee in exchange for a broker price opinion (BPO).

You can prepare a BPO the same way as a BPO agent to get a price the bank is likely to accept.

That price is probably not market value. It could be under market value or over market value. If it is under market value, then make an offer quickly. If you're lucky, the seller's asking price will be accepted by the bank. The price could be a bargain, but only if a BPO will substantiate it. That is the key.

How to Prepare a BPO for a Short Sale

Preparing a BPO is fairly simple. Note that consideration should not include the location or any amenities or upgrades, which can affect the opinion. You will compare a home on a busy street the same as a home on a quiet street. You might use comparable sales for zero-lot lines or homes that back to the freeway as a measuring tool for homes with acreage. You will not distinguish between fixers or remodeled homes. Following is the basic process for preparing a BPO:

  • Run a radius or a map search within a half-mile of your subject property.
  • Look for similar square footage and age.
  • Average the sold sales by adding them together and dividing by the number of homes sold.
  • Use that average per square foot cost times your square footage.

How to Buy a Short Sale When the Price Is Too High

If the BPO produces a value that is over market value, and you still want to buy the home, you can bid over the asking price. If the home is truly desirable, you might be in competition with other buyers with multiple offers. Make an attractive bid, which may be the highest offer, to increase your chances of getting the home.

In a short sale, if the appraisal by the buyer's lender ends up less than the sales price, resulting in a low appraisal, you can probably get the bank to reduce the price. The bank will almost always match the appraised value. However, if this were a regular short sale, the seller might refuse to lower the price.

But a short sale seller must sell. Plus, the short sale bank has already approved the short sale. If the bank wants to close the transaction, and at this point most banks do, the bank will lower the sales price to match the buyer's appraisal.