Buyer beware: Short sales not always speedy
Last year, low interest rates and the federal tax credits brought real estate properties to bargain-basement prices. A portion of the cut-rate homes on the market were foreclosed properties or those that were offered as short sales.
In 2010, the number of foreclosures filed topped a record 3.8 million, according to RealtyTrac, a company that aggregates real estate information. It estimates that number could increase in 2011 as a result of the foreclosure moratoriums during the last part of 2010.
Sellers will be more willing to negotiate as many face foreclosure; however, buyers should be aware that promises of discounts and quick turnover may not always live up to expectations.
The National Association of Realtors reported that foreclosed homes sold at a median discount of 15 percent less than a traditional home sale and short sales at a 10 percent discount in November 2010, the most recent data available. But some consumers are finding that the process of buying a distressed property is more trouble than it's worth.
"Do not try to buy a short sale," says a New York City member who responded to our poll. "It takes longer than it might look— we wasted almost one year waiting for a home that was supposed to be able to close in three to six months!" Some homebuyers avoid purchasing short sales because of the time it takes to seek approval from the original lenders, as well as any additional lienholders, and can wait months, only to be rejected.
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"Buyers are essentially throwing their contracts up on a wall and hoping they stick," says Jim Merrill, president of the highly rated Axel Mortgage in Phoenix. Merrill says the process can frustrate home hunters, though those in the market in Arizona and other states awash in distressed properties may have little choice.
Some members have found the hassle is worth it with the help of an experienced agent who has the gumption needed to navigate the process. Joachim Deguara took advantage of a short sale to purchase his first home in Felton, Calif. "We definitely thought it was a great time to buy, with the bubble already having popped," he says.
Purchasing a short sale property — or one that the bank agrees to sell for less money than the outstanding mortgage on the home — took longer than a typical home sale, but Deguara says he got a great deal on a house he loves.
"Some people are going to benefit off the fact that other people have failed," says Natalie Amento, who works in real estate in the Longwood, Fla., area near Orlando, where housing prices have deflated and a glut of homes remain for sale. "It's time for the savvy investor."