Although short sale purchases can offer many advantages to buyers, many buyers fall into some common pitfalls that lead to the rejection of their offer or the collapse of the entire deal. Avoiding these pitfalls can help homebuyers ensure they get the best possible outcome when trying to purchase a shortsale. The following are seven of the top pitfalls that often ensnare buyers and some helpful advice on how to avoid them.
Pitfall #1 – An Offer that is Too Low
Making an offer that is too low is one of the most common pitfalls that buyers fall into when working to purchase a short sale property. This problem often leads to the rejection of the buyer’s proposal or it may even make the entire sale fall through if the lender gives a flat refusal to sell instead of a counteroffer. Buyers often focus so much on getting the lowest real estate prices possible that they fail to remember that their offer needs to be attractive to the lender. After all, the lender wants to receive an offer that makes the shortsale more attractive than allowing the home to go through foreclosure.
Coming up with the right offer on the home will include looking at several factors. The price offered on the home should be based upon comparable sales in the area and the condition of the home. While buyers should expect to save money on their purchase when compared to traditional real estate properties, they should not expect lowball offers to be approved by lenders.
Pitfall #2 – Incomplete Shortsale Proposals
Another pitfall to avoid when purchasing a shortsale is incomplete shortsale proposals. This is one of the main reasons that short sale proposals are rejected by lenders. Agents that are not familiar with these transactions often fail to understand the process, as well as what lenders are looking for in a proposal. This leads to proposals that are incomplete.
To avoid this pitfall, it is important that buyers understand the process thoroughly. Buyers should also work to hire a qualified real estate agent that is knowledgeable and experienced in dealing with short sales as well. A good agent can work with buyers to ensure that the proposal provided to lenders is complete and cohesive, ensuring that the proposal is not rejected simply for being incomplete.
Pitfall #3 – Failing to Be Financially Prepared
Failure to be financially prepared is a pitfall that can quickly end your journey towards purchasing a short sale property. Although buyers may be willing to make an offer on real estate homes, it does not mean that they are actually qualified to go through with the purchase, especially in the country’s current economic climate. To get a proposal confirmed and approved by lenders, buyers need to be prepared financially, coming forward with financing preapproval, verified closing funds and a confirmed ability to actually purchase the home.
Before submitting an offer on the short sale, buyers should be familiar with what will need to be verified, which is where an experienced short sale agent can be of help once again. Buyers should have their preapproval for financing already taken care of and should have funds moved and ready for the down payment and payment of closing costs. Buyers that show they are financially prepared are more likely to be approved, but failing to prepare financially can quickly end the quest towards a short sale purchase.
Pitfall #4 – Problems with Deal Submission
Problems with deal submission are another pitfall that homebuyers must avoid when working to purchase a short sale. Failing to follow the directions provided for deal submission will result in problems. Departments dealing with these transactions are already understaffed and overworked. They do not have the time to handle the problems with a shortsale file. Deals that are not submitted properly are unlikely to be approved.
To avoid these issues, buyers and sellers both should ensure they follow the instructions for submitting the deal. Even the small instructions, such as directions to mail two copies of certain items, should be followed exactly. No one wants to have their shortsale deal fall apart because of a silly problem with deal submission that could have easily been avoided.
Pitfall #5 – Inadequate Communication and Follow Up
A short sale process can be a lengthy one, but one problem to avoid during this long process is inadequate communication and follow up with the lender. Failure to continue communicating with the lender may result in the denial of the transaction. Delays can occur along the way, but communication can keep everyone informed about what is going on with the process.
Choosing a highly qualified agent can help buyers ensure that the agent knows how to follow up and communicate with lenders while going through this process. This way any issues that come up are addressed quickly before they jeopardize the transaction. Good communication can also help to prevent any unnecessary delays, making the process go much faster and smoother for all involved.
Pitfall #6 – Failure to Inspect the Property
Do not fall into the common pitfall of failing to inspect the property before making the purchase. Since shortsale properties are sold “as is” in most cases to help banks avoid more losses, buyers should not forget to have an inspection done on the property. An inspection is the right of the buyer before the deal is closed. Failing to have the property inspected now means that anything found at a later date will be the responsibility of the new owner.
Having an inspection done on the home can allow buyers to find out about any major problems. In many cases, only small problems exist that can be taken care of with a bit of work and a small amount of money for the repairs. However, more serious problems can be expensive and may make buyers think twice about purchasing the home “as is.” Being aware of potential problems and damages can also help strengthen the proposal of the buyer, especially when justifying the price they offer on the home.
Pitfall #7 – Not Having a Price Cap When Negotiating
Lastly, failure to have a price cap in mind when negotiating the price of a short sale is another common pitfall. Usually, buyers are choosing to move forward with the purchase of a shortsale because they want to enjoy purchasing a nice home for a reasonable price. In fact, many buyers are able to purchase a much nicer home than they would be otherwise able to afford.
However, when a buyer places a bid on a home, the lender can come back with a counteroffer that includes a higher price. Also, since short sale purchases are becoming more popular among homebuyers today, there is a chance that buyers can find themselves in bidding wars with other potential buyers. Bidding wars can occur, which may drive the price of the home higher. In fact, sometimes bidding wars can take the price well above the actual market value of the home.
Although buyers may really want to purchase the home, failure to have a price cap when negotiating or bidding can lead to overpaying on the home. One of the main benefits of going this route is saving money on the home. However, without a price cap, there’s a chance that buyers will end up overpaying. Avoid this problem by setting a price cap. An experienced real estate agent can help buyers submit a good bid and can also help them come up with a reasonable price cap to avoid paying too much for the short sale property.