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Here are 11 Reasons Why Buyers Might Not Want to Buy a Short Sale:
1) Sellers Paid Too Much.
If a home sold for $500,000 a few
years ago and is now for sale at $400,000, that doesn't mean the buyer is
picking up $100,000 of equity for
free. It means the seller paid too much in a rising market and now the market
has fallen. It means the seller has no equity.
2) Sellers Borrowed Too Much.
Banks that were eager to lend money
in appreciating markets sometimes allowed borrowers to over-mortgage the home,
meaning the borrower's loan balance exceeded the value of the property. Appraisals
are subjective, and not all appraisers will place the same value on a home.
Although against the law, some appraisers are pressured by banks to appraise at
the amount the home owner wants to borrow.
3) Stringent Qualifications.
Inexperienced or unethical real
estate agents might push a seller into considering a short sale when the seller
does not qualify
for a short sale. Sellers must prove a hardship and submit evidence of the
hardship to the lender for approval. Some agents list homes as short sales
without ever talking to the lenders or pre-qualifying the sellers.
4) Homes Sell at Market Value.
Lenders aren't naive or unaware of
the value of a home. Lenders will insist on a comparative
market analysis, known as a CMA, or broker price opinion, known as a BPO.
If a lender believes a better price can be obtained by taking the property back
in foreclosure
over a short-sale offer, the lender may hold out for a higher price. That price
will be close to market value.
Lenders accept short sales when the home is worth the short-sale price, which
means market value.
5) Homes Sell "As Is".
If a mortgage
company agrees to a short sale, it is most likely also paying the closing
costs in the transaction. Lenders ask buyers to purchase the home in its
present condition. Lenders typically will refuse to pay for:
6) Length of Time to Close.
Depending on when the Notice
of Default was filed, the lender's back-log of foreclosures and how much
paperwork the seller has already submitted, it could take anywhere from two
weeks to two months to get a response on a purchase
offer from a lender. In addition, if two lenders are involved because there
are two loans secured to the property, it could take longer to satisfy the
demands of the second lender.
7) Lenders Can Change Conditions.
Some lenders reserve the right to
renegotiate the terms of the short sale at the last minute. If the market
changes, new laws pass or new information crosses the lender's desk, the lender
can attempt to change the terms of the contract. Lenders generally have lawyers
at their disposal, and ordinary buyers do not.
8) Lenders Discount Commission.
Generally, only lenders who have
sold loans to Fannie Mae or Freddie Mac are paying traditional real
estate commissions to real estate agents. The rest may want a discount.
Moreover, agents end up doing two to three times the work of a conventional
transaction and don't appreciate getting paid less to do more work. If you have
agreed to pay your agent a certain percentage under a buyer
broker agreement, you could be liable for the difference between what the
lender will pay and what your contract stipulates, if your agent refuses to
waive the difference.
9) Higher Buyer Closing Costs.
Because lenders rarely will pay for
any extras, like a seller would be willing to do, if you want any of those
extras, you will pay for them yourself. Sometimes lenders will refuse to pay
for standard seller closing costs such as transfer taxes, too. If you want
specific inspections, you will probably pay for them out-of-pocket.
10) Lose Control of Transaction.
If you need to close escrow by a
specific date, lots of luck with that. A short sale home
closing process takes an indefinite amount of time. The seller's lender
calls the shots, not the buyer nor the buyer's lender. If you are trying to
close escrow concurrently with the sale of your home, it might not happen.
11) Little Seller Motivation.
When the seller discovers that the short
sale effect on credit is close to that of a foreclosure, there is little
incentive for a seller to cooperate with a short sale. Although sellers may
qualify to buy another home in 2 years after a short sale versus 5 (with
restrictions) on a foreclosure, some have no intention of ever buying another
home again.