A short sale, in and of itself, does not make for a good deal or bad deal. By this, I am defining a â€œgood dealâ€ as purchase which is financially advantageous to the buyer, purchased below fair market value.
Compare 3 scenarios below:
1) Short sale: Offered for sale at 300K. Comps support 350-360K. Loan balance is 365K. (Assume only 1 lien.) 4 offers made, ranging from 290K-322K. Bank rejected all offers and property went to foreclosure auction. If the bank would have accepted an offer, it probably would have been a win for all parties. The seller would have avoided a foreclosure, the buyer would have a good deal, and the bank would have a better net bottom line than they most likely will after an auction and REO sale. But, the bank rejected all offers. If you were one of the buyers, you invested time in the hopes of a good deal. But, it was gambled time, with no positive results. Was it worth the time invested? Probably, because, you might have gotten a yes from the bank.
2) Short sale: Offered at 280K. Comps support 260K. Loan balance is 310K. (Assume only 1 lien.) Cash offer at 280K, requiring no appraisal for mortgage. Was this a good deal for the buyer? Not if the comps do not support 280K. Simply because the purchase price is below the loan value does not mean it is a good deal. If you bought it for 260K, does the deal make sense? Itâ€™s fair market value. Are there other properties that would equally meet your needs that can be purchased at fair market value? If so, why take on the extra burden, stress and uncertainty of a short sale? If no other property meets you need, then, yes, the aggravation of the short sale is worth it at 260K (fair market value.) If you love the property, and you know the comps support 260K, but you really want the property and are willing to pay 280K, then you can do that. A good buyer agent will help you make informed decisions. Ultimately, the decisions are yours.
3) Short sale: Offered at 520K. Comps support 590K. Multiple offers result in an accepted contract at 545K. You just bought a property for 45K under market value. It was a lot of headache. The process took 5 months. You missed work, you fought with your spouse, and you kept looking at properties every week, just in case this did not work out. Was that worth 45K? For some, the answer will be an boisterous and resounding â€œYES!â€ For others, the answer will be, â€œForget about it. Donâ€™t do it.â€
In the end, the answer is, â€œIt depends upon you and it depends upon the property and circumstances.â€
Deborah Madey - Broker
Peninsula Realty Group