The Condo Mania Team
Buying a Short Sale Condo -- Is it worth the Trouble?
published on 2014-05-29 by Liz Suto
Most people are vaguely familiar with the term "short sale" from the media attention it has received in the past several years. In case you aren't sure what the term means, here is a simple explanation: If an owner owes more on a home than he can sell it for, the owner can, with bank approval, sell the property for less than the mortgage amount, and have the difference forgiven. For example, an owner owes $150,000 on his condo. He can sell it for $100,000. If the bank approves a short sale, the owner can sell it for $100,000 and the $50,000 difference would be forgiven.
There are several reasons an owner may consider this path instead of a foreclosure, but for now we want to focus on the buyer's perspective. Here are some differences in what to expect when buying a Phoenix short sale property.
It takes longer to close. Though the contract you submit is between you and the seller, bank approval is a seller contingency. That means that if the seller doesn't get bank approval for the short sale, you don't have a deal. And this approval may take from 2-4 months. So, be prepared to submit a contract and wait.
It may not close. Lenders are playing hardball with sellers now, and asking for promissory notes. This puts sellers on the hook for some debt after the sale, which might not be in the seller's best interest. If the seller does not agree, then poof, the deal is gone.
The lender may not approve the price you agreed to. The lender will order an independant appraisal, and will want to get the price the appraiser determines, not necessarily the one you agreed to. It's rare these days to get a price that is significantly under the appraised value.
The property is sold as-is. Lenders often do not want to see the seller contribute much in the way of cash to fix a significant problem found during escrow, so don't assume that problems your inspector finds will be remedied by the seller.
So given these major negatives, why would you want to put an offer on a short sale condo? In some cases, you won't want to go through the hassle and uncertainty. But in some cases where the value of the condo is not perceived by the bank appraisers, a short sale condo can be worth the wait and the uncertainty. This most often happens when the condo has a prime location in the development, and/or has some valuable or hard to replicate interior upgrades. Even in the condo world, not all units are equal.
We have worked with many short sale transactions, many of which do go through and have resulted in a happy buyer. As long as expectations are set by all parties, short sales remain a viable option for many buyers.
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The Fair Housing Act prohibits discrimination in housing based on color, race, religion, national origin, sex, familial status, or disability.
Information Deemed Reliable But Not Guaranteed. The information being provided is for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. This information, including square footage, while not guaranteed, has been acquired from sources believed to be reliable.
Last Updated: 2022-10-01 05:14:51