What You Should Know About Purchasing a Short Sale

Making an offer on a short sale?

Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set.
Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set.

The housing market competition is fierce amongst buyers as homes are being purchased at their fastest rate in Minnesota since 2007. While great for sellers, this leaves buyers in a predicament as they look for purchasing alternatives. If you’re looking for a new home, a short sale may be right for you.

A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You might be a good candidate for a short sale if…

  1. You’re not in a hurry. The seller’s lenders have to approve the sale before you can close on the home. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
  2. You have solid financing that is in order. Cash offers are looked upon favorably by lenders. It’s alright if you can’t pay in all cash, but you need to show you are qualified. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
  3. Be flexible and have no contingencies. A short sale may not be your best option if you need to sell your home before purchasing or you’re working on a deadline. Lenders like flexibility.

Short Sale Risks

  1. Rejection. You may put in months of due diligence only to have your offer turned down. Lenders want to minimize their losses. If you make an offer far below market value, you will likely be turned down after all your hard work.
  2. Bad terms. Sellers may refuse to go through with the short sale due to bad terms. Terms could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to those sellers suffering from financial desperation. Lenders also can change any of the terms of the contract that has already been negotiated, which may not be agreeable to you.
  3. No repairs. Be prepared to accept the property as is. As lenders are already taking a loss, don’t expect requests for repair credits to be approved.

A short sale can be a win-win for all those involved, but take the time to consider if it is right for you.

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.


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