On the face of it, buying a house on a short sale basis certainly sounds like a good deal, especially for investors. It’s often an opportunity to purchase a property at a price well under its normal appraised valuation.
But before jumping in, you need to be aware of the disadvantages of buying a short sale in Baltimore.
Depends on Mortgage Lender’s Approval
A short sale usually involves selling a house for less than is owed on it. A house listed as a “short sale” is still owned by an individual (unlike the case of a foreclosure). That person either makes up the difference between owed amount and sale price or gets the lender to write it off.
What this means, then, is the owner isn’t the one who approves the sale price – it’s the lender. And since the owner is attempting to get the lender to accept less than is owed on the property, the lender isn’t always very eager to accept proposed prices. You could go through the whole headache-inducing negotiations process only to have the lender ultimately reject your offer. And then you’d have to do it all again.
And on top of that, if there are liens against the property, you’d have to get more than one lender to agree to the sale price.
Related to our first of the disadvantages of buying a short sale in Baltimore is the fact that the advertised short sale price may not be a lender approved price at all. It’s often the case that the advertised price is just a ploy to get potential buyers on the hook.
If the lender doesn’t accept your offer of the advertised price, they may give you a counter offer. But it may be more than you’re willing to pay for the property, and you’re out a lot of wasted time again. And, again, if there are multiple liens on the property and even if the first lien holders accept your offer of the advertised price, a lien holder further down the line may reject your offer.
If you need to purchase a property quickly, a short sale probably isn’t the best option. It sometimes takes up to a year to get a short sale finalized. And of all the disadvantages of buying a short sale in Baltimore, this one could be the most off-putting for investors.
If you’re buying a short sale, you’ll need plenty of patience. Although a response from a lender usually takes at least a couple of months, it can (and does) take nine months or more in some cases. Other factors that come into play to lengthen the process are the lender’s experience with short sales, the number of lenders involved, and whether the seller has actually been short-sale approved.
The upshot of this is that buyers can lose out on low-interest loans with rates guaranteed for only 60 to 90 days. Buyers could also lose tax credits during this protracted waiting period.
Generally, sellers wanting to negotiate a short sale are suffering from some kind of financial distress or hardship. It’s very likely the case, then, that they don’t have and haven’t had the money to properly maintain the property. And because the lender is already losing money on the sale, they won’t offer any concessions for maintenance problems. That’s why most short sales are done on an as-is basis.
So if you’re considering buying a short sale, you need to be aware that you may have to lay out some significant cash for thorough inspections. And, then, maybe a lot more for repairs.
Buying an investment property isn’t always as easy as it seems, and a deal isn’t always as sweet as it appears on the surface.