A simple step-by-step guide to buying a home in the Diablo Valley.
What is a short sale?
A short sale is what happens when someone sells their home, but it’s worth less than what they owe to the lender or lenders. Here’s an example: Say five years ago, you bought a $500,000 house and put 10% down. You have a loan of $450,000. Five years pass and now unfortunately that house is only worth $300,000. But your loan after five years of mortgage payments is $330,000. If you sold the place, you wouldn’t be able to pay off the loan. In other words, you’d be short.
What’s that all mean for you the buyer? Well here’s what happens should you decide to try and buy a short sale home. You make an offer to the seller, negotiate and come to an agreement. Then you get the bank involved. See it’s great that you and the seller agreed to a price, but the final decision is up to the bank, which has the loan. Now, here’s the big complaint everyone has about short sales. They take forever. The problem is the big banks are so inundated with short sales that your paperwork for the house you’re trying to buy may sit at the bottom of a huge stack of short sales on the desk of a guy in Iowa for months before anyone gets around to looking at it. Once they do, they’re going to decide for themselves whether they agree with your agreement between you and the seller. If they don’t and they think the house is worth more, than you can renegotiate or walk away.
Some other issues:
- If the seller has multiple loans with different lenders, then those lenders essentially have to agree on who gets what, and that can get sticky.
- Also, lenders aren’t in the business of paying for inspections or fixing things to make the deal go smoothly.
To be honest with you, there aren’t a lot of positive reasons to go after short sales. The best you can hope for is that the lender isn’t wise to the local market and doesn’t try to get fair market value for the home you want to buy. But lenders aren’t stupid, at least not all of them.
So while sometimes short sales can be a good deal, often times they are not worth the wait.
