Donna,
You have some great advice and information in the prior posts. We are in a time where you can potentially buy property for the same or better deal of a short sale. Your agent will provide you with that information so that you can see that there are plenty of choices. I am finding with my customers, that they are going through the short sale process because it IS the house they want and have been looking for ( or have always liked) and are willing to go through the longer time frame. Otherwise, there are faster, simpler ways of buying property right now.

Donna,

I think the long and short that has come from the couple of questions that you have asked is that buying a distressed property under whatever name you call it is not for the weak at heart. You can not fall in love with a house or have a strict timeframe and/or need a specific type of financing.

With that being said there are opportunities to purchased distressed homes and get a house that you like in a relatively loose timeframe if you have solid funding. The best people for these deals are cash buyers. Because the condition make not be great, there is typically a time length to wait, and certain financing issues that may arise there are less "conventional" buyers for most of the distressed home.

Are you looking to buy or sell a home?

Hi Donna
If I understand your question, then the answer is pretty simple. The pro's are an opportunity for a purchase at below market value, and the con, it usually takes a much longer time to purchase one. I am working on a short sale now going on 4 months, that is not always the case but you have to be prepared for a much slower process.
Michael

Ah, the Mike and Tim Show. Mike has a point in that you have to consider the condition of the property. You do that every time you buy a house. There is no guarantee that a short sale is in excellent condition, like there is no guarantee that any home for sale is in excellent condition. Usually, short sales are not in excellent condition, because the seller is in financial trouble. Also, short sales are usually sold "AS IS" because the seller does not have any money to fix what the inspector finds. On occasion some repairs are done, but not usually.

So, you take into consideration the conditioin of the property and the repairs it needs. You figure out the market value. You multiply by 9/10 and make an offer so you get a 10% discount. By contrast, the negotiating room on average in Wake county is between 2% and 3%.

Why do you get the 10% discount? Because most buyers cannot stand the waiting time it takes to purchase a short sale. If a buyer has a job transfer so the family is moving here from Toledo with three kids and a dog, they will not be interested in staying in Extended Stay America for a couple months to see if they get the short sale house. When there are less buyers, there is less demand and the price goes down.

Mike, you have a good answer. You have a point, you have to consider the condition, and it is usually worse than a retail home that is for sale. But the price is also lower than the home in excellent condition that is selling for a retail price. Short sales are not for everyone, but if you understand the benefits and risks, you can get a good house at a good price. If you cannot take the waiting time or deal with the issues associated with the condition, buy retail.

I agree with some of Mike and Tim's points. Short sale and foreclosure labels do not guarantee a bargain. You ALWAYS have to take the time to have your agent analyze the other sales nearby, annual trends and any future changes that may impact property values.

If you are on a time line to buy a home, a short sale is NOT the way to go. Also, there are other costs involved like, utilities being turned on at the buyers expense for inspections. I've recently been negotiating a sale that will not allow more than 1% of the closing costs to be paid. I've asking for a variance to the HUD guideline so the deal will stick with 2% down payment. It's take 3 weeks just to get a yes on one question! On a "normal" sale FHA allows up to 3% down, so this item shouldn't matter. But the short sale and bank involvement changes the game.

Any home purchase will have pro's and con's...you just need to make sure your risks are lowered by hiring a great partner/Realtor and don't get emotionally hooked into a home. Always think about the future and the investment that you're making.

Donna,

I am dead right on these two points.

"Short sales do not immediately imply a bargain."
"I have seen short sale homes that were in dreadful condition. Assessing the condition of the home is very important."

Be careful.

Dear Donna: Mike is right about the time it takes for the lender to review the short sale. But he is wrong about the bargain aspect. Most lenders will take a payment that is 90% of the market value, so you get a 10% discount on the home. Some lenders will take a payment that is 80% of the market value, so you get a deal that is 20% below the value of the home. As a buyer, the 20% discount is substantial, if the lender will accept a payment that is that short.

The lender does not have to take the short sale, but nearly all of them will if the seller and the property qualify. So, the buyer has to wait for the lender who is getting the short payment to review and approve the sale. This usually takes weeks, and I have had some extreme experiences that have been way too long (my record is over a year, but that was an odd case). I have been doing short sales since 1992, so I have a lot of stories to tell.

If you are considering a short sale, you have to understand that the sale will not be completed unless the bank approves the short payment. Unlike a normal sale where you know where you stand once the seller signs the contract, you do not know that you will close until the lender approves the short payment.

There is a section in http://www.CreateAShortSale.com that explains short sales from the buyer's perspective and from the seller's perspective. My last post focused on the seller and I should have focused on you as a home buyer. Take a look at the website for all the information that you should know as a buyer.

Thanks for asking.

A short sale is a sale where there is not enough money to pay off all the loans and liens. In other words, the payment is "short". I teach the class approved by the North Carolina Real Estate Commission for continuing education credit on short sales.

The pros: it hurts your credit less than a foreclosure or a deed in lieu of foreclosure. For example, Fannie Mae guidelines say that you will not be eligible for one of their loans for two years after a short sale, but it will take four years if you give the bank a deed in lieu of foreclosure and five years after a foreclosure. Also, you can move out gracefully, instead of being thrown out in the foreclosure. The neighborhood gets a better transition, as there is no foreclosed, vacant and possibly vandalized house as there is with a foreclosure.

The cons: There may be income tax due on the money you do not pay back. When you do not pay back a loan, there is income tax on the amount you did not pay back. The Mortgage Forgiveness Debt Relief Act of 2007 says that there is no income tax if you do not pay back the money that you used to buy the house. But, if you took out a home equity loan to pay off other bills or buy a car, and you do not pay that money back, you could have income tax.

If you want a detailed analysis, go to http://www.CreateAShortSale.com which is also http://www.ShortSalesR.us . If you need to do a short sale, and you are in financial trouble, the sooner you start the better. I am doing one now where the foreclosure sale was 9 days away when we started. We will get the property sold and we did stop the foreclosure, but it is much more difficult and most Realtors cannot get those results that quickly. So, if you need help, ask for it early in the process.

If you are looking for an agent to do a short sale, do not consider one who has not taken a class, been trained or has experience in the field. It is not like a normal sale and it requires special skills.

Good luck,

Donna,

A short sale is a sale where the homeowner owes more than anyone will pay for the home, the homeowner is in financial distress and behind on payments, and the lender(s) agree to accept less than full payment for the debt.

Short sales per se have no benefit to the buyer, unless the specific home is very important to the buyer, or it appears that a specific home potential price is very attractive.
Short sales do not immediately imply a bargain.

Short sales can be frustrating, since the banks can be very slow to respond.
If there is a second mortgage on the home, both lenders must be satisfied before the transaction can close.
This can be very time consuming, so the short sale can take months to close. Meanwhile the buyer may be in limbo. Worse yet, the buyer may find that they canno get the attractive loan rate they first were offered, sic=nce rates may change during the process. The rate lock may expire with higher rates in effect.
While there may be good prices on short sale homes, one must gauge their desire to become involved, particularly when there is much inventory that is not offered as short sale.

Another consideration is similar to important consideration when buying a foreclosure. If the homeowner cannot make the house payment, they are probably not putting much money into maintenance. I have seen short sale homes that were in dreadful condition. Assessing the condition of the home is very important.