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The real estate market is changing and homeowner’s employment situations are changing as well due to COVID-19. Because of this, one real estate trend that might become more common is short sales. 


A short sale in real estate occurs when a homeowner sells their house for less than what they owe on their mortgage. The mortgage lender would end up “short” on what they were originally owed for the home. The home seller won’t get any profit from the short sale and the bank will receive all of the sales revenue from the new buyer.


Sometimes this is the best option for homeowners who are in the midst of financial trouble and need to quickly downsize or move into a smaller home. It’s typically a better choice for both the homeowner and the bank to do a short sale at a loss to both parties instead of foreclosing on the home. There are also some pros and cons of purchasing a short sale for home buyers.       


What are the downsides of short sales for home buyers?


There are a few things that you ought to consider before investing in a short sale purchase.


Even though the transaction’s called a “short sale,” unfortunately, the process of closing on a short sale may not be short at all. The process of purchasing a short sale tends to take much longer than the traditional home buying process. Banks can be weary of accepting short sale offers as they are already at a loss on a property and may want to only proceed with the buyer who will make a large down payment. However, in other cases the bank may want to approve the property quickly so that they can close out the sale within a few weeks. Ask your Realtor to walk you through the typical time frame it takes to close on a short sale. 


Another important thing to keep in mind is that you need to have a Realtor with strong negotiation skills in your corner. Putting in an offer that is too low because you’d like to leave room to negotiate a great deal, will likely not work in your favor. Banks will likely ignore a low-ball offer on a short sale. But, that doesn’t mean you still can’t get a great deal on the home. That’s why having a top Realtor with expert negotiation skills is so important when buying a short sale. Your Realtor will understand the fair market value of the home and will guide you on how to put in an offer that gives you the best advantage. 


What are the benefits of buying a short sale home?



The good thing is there are some great advantages for home buyers when buying a short sale home. Short sale properties tend to have lower prices so that the bank can avoid all of the huge fees that come with a home being foreclosed. In order for the bank to avoid paying those fees, they will often sell a property well under the market value which results in a great deal for the buyer. 


You can get a good deal on a home that is being sold “as is,” which is common with short sales. (A short sale usually indicates that the home is in default because of missed mortgage payments. So, when the seller initiates this kind of sale with the bank, the seller won’t be making any repairs on the home before it’s listed for sale because they won’t profit from the repairs.) The bank can foot the bill on home repairs before the new buyer closes, but the bank tends to sell the home to you “the buyer” in the current condition at a lower cost. This is good for you as the buyer especially if you normally couldn’t afford the home at market value and are willing to work on fixing the home up yourself.


What is the process of buying a short sale home?


The seller will speak with their lender, “the bank,” about putting their home on the market as a short sale. Then the home will be listed on the Multiple Listing Service (MLS) as a short sale. 


After you find a home that you’d like to put in an offer for, you’ll need to have your Realtor give you a list of comparable home sales in the area. You’ll review the comparable listings with your Realtor and your Realtor will give you a recommendation on an offer price. Your Realtor will write up your offer. You will sign the offer. Then your Realtor will submit the offer to the listing agent on your behalf. 


In order for you to move forward with buying a short sale, the seller will accept your offer first. Then the bank will have to perform an initial approval of the seller, the home, and your offer. The bank may decide to negotiate back and forth until you land on an offer they’re willing to approve that’s most likely close to the appraised value. 


The Realtor will submit all of their necessary paperwork to the bank to process and the bank will perform their due diligence. It could take anywhere from 30 days to 4 months for the bank to perform all of the necessary appraisals and negotiations to accept the offer.


After the bank officially approves your offer, you will enter into escrow. The bank will continue processing your paperwork so that you can close on your new home. The time it takes for the bank to finish processing all the paperwork may take a few months, but it is possible it may only take a few weeks depending on which bank holds the loan. Your Realtor will do the heavy lifting for you and keep you informed of where you are in the process of closing on your home. They should call the bank on a weekly basis to communicate with them about the progress of your paperwork.


Make sure you work with a Realtor who has experience with short sales – they’ll be able to help you figure out the best offer for the home and how to negotiate with the bank to your best advantage. 



When the home you want to buy is listed as a short sale, the buying process can be difficult when factoring in all the added negotiations and requirements. Make sure you get an experienced Realtor on your side so you don’t have to try to do it alone. If you’re looking to buy a home in the Placer County and surrounding area, contact us at Quantum Real Estate. 


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