If you are anything like me, stories are great, but you want facts. Like everything else found on Reluctant Landlord, these facts, are based on my experiences, views, and markets. Use this knowledge to give you the power to know how to ask the right questions.
What is a Short Sale?
- No Haggling – Since there are no profit gains we had a lot more experience with the sellers taking “low” balls. Then it was up to the banks to decide if they would accept it or counter. This allowed us to get some great deals. As discussed in The Ugly below there were sometimes negative consequences. The tax rules have also changed causing people in some areas to haggle hard because they don’t want to have to pay taxes on the forgiveness. That being said, we are still putting offers experiencing no counters.
- Price Discount – Often the house is lower than market, i.e. a discount, because it is a short sale. So you can save money “through brains not brawn” if you are able to successfully close the sale.
- Better Shape – Because the houses were voluntarily relinquished, in my experience, many are in great condition. Some repairs were cheaper or in many cases nonexistent. One of our owners even repainted all the walls to make sure it was in great shape before we received it.
- Closing Cost – They paid closing costs. This was great since it reduced our out of pocket expenses.
- No Repairs – The sellers are making no money off of the sale and losing everything they put into the house. So they are usually unwilling to make any repairs. The inspection is only for you to determine if there are any deal breakers but usually have no impact on the sellers.
- Length of Time – Short sales can take anywhere from 52 days (our shortest) to over a year (our realtor’s experience). When we were acting as an investor living in a house it was no skin off our back. On the other hand, when we were homeless until the house closed it caused me great stress and unrest. Let’s just say that my realtor almost fired me. It turned out to be one of our best buys. It was so worth it during the long term, but short term it was not so fun!
- Paperwork – Since you are dealing with another entity it adds another layer to an already burdensome process. It makes the paperwork and number of hoops to jump through dramatically increase. For us, compared to all of the sweat equity and materials, our foreclosure cost more than short sales. I was more than happy to sign more documents, deal with more people, and mostly let my amazing realtors deal with it.
- Unreasonable Counter – The bank is the final decision. They will do their equivalent of an in house appraisal and then they will either accept or counter price. You could wait months only to have the bank unreasonably counter and lose the house because it is not worth it. Then you are back at square one.
- Foreclosure – The house may foreclose before your short sale is completed. The process abruptly ends and you lose the deal. You might still be able to buy the house in the foreclosure process, but I personally have never been successful.
Short sales are not without risks and consequences. There are reasons why stigmas exist. On the other hand, even with the changing market, they are still my personal favorite. As everything, there is a right place and time. They do not work in every situation. So discuss your situation with your advisors to see if this is the right option for you!1