Albuquerque home buyers are presently trying to find the best deal on a home. Buying a short sale is a great way to get a home at a deep discount. You can save a lot of money, but the transaction can be risky.
How does a short sale work? When a home is sold for less than the amount owed on it, it’s called a short sale. A homeowner will initiate the process of selling their home when they realize they cannot pay their mortgage anymore. To avoid foreclosure, an owner needs to apply.
At the height of the Great Recession in 2008, short sales were prevalent. When a home is undervalued, a short sale is usually approved, but the seller must demonstrate financial hardship.
Short Sale vs. a Foreclosure
Short sales are not the same as foreclosures. In a foreclosure, the bank takes possession of the property. It is then resold at a reduced price by the bank to recoup its costs. In both cases, financial hardship was at the root of the problem.
A short sale is an agreement entered into voluntarily by the seller. Foreclosures are not voluntary for the seller. A foreclosure is worse for a seller’s credit score, and they may end up having to file for bankruptcy.
What Are the Benefits of a Short Sale?
Short sales offer some significant benefits for Albuquerque homebuyers. The obvious choice is to lower the price. Lenders are usually quite motivated to sell and recoup their losses. Buying a short sale may also be easier since there may be less competition from other buyers. With less competition, your offer is more likely to be accepted.
An advantage of a short sale for sellers is that a foreclosure will not be triggered and debt may be forgiven. Short sales allow sellers to reapply for a mortgage after two years. After a foreclosure, it is much harder to get a new mortgage.
Downsides of a Short Sale
Short sales, however, do have some disadvantages. Closing can take longer than a regular home sale. A second concern is that the home is being sold “as-is.” This increases the likelihood of complications.
As a buyer, you would lose valuable time if the transaction didn’t succeed. A short sale may have worse conditions than other properties because the owners are experiencing financial hardship.
In addition to the pitfalls for buyers, there are quite a few pitfalls for sellers as well. The seller has no power to negotiate the price-only the lender has this power. Short sales damage an owner’s credit scores since the lender will not receive any profits from selling the home.
Short Sale Tips
If you understand the potential risks but still want to look for a short sale property, make sure you go into it prepared. Although the property is sold as-is, it still needs an inspection to determine how much you will have to spend on repairs. If you can prove the house needs major repairs, you have more bargaining power with the lender.
You should always be realistic with your short sale offer, even though this is a great way to get a deal. Too low an offer can be rejected.
A good idea is also to provide the lender with as much cash as possible. This will reduce the lender’s risk.
Make sure to join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Contact us today to help you buy or sell your next home in Albuquerque.
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