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what does a short sale involve

What does a short sale mean for the buyer? Is there more risk involved for the buyer? Are there inspections allowed and is the buyer obligated to repair any of the things shown to me below code on an inspection?
  • August 25 2013 - South Hampton
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Answers (6)

Each of the previous answers have hit on accurate points:  A few details I might mention:
Buyers can become frustrated when attempting to purchase a short sale home.  However if you have time, and really want the property then often a short sale can allow for a less than retail purchase price.
Most short sale transactions allow for inspections, but these inspections are only used to terminate the contract, not to negotiate repairs, credits, or reduction of contracted sales price.
Keep in mind also that if you use a "special sales" contract here in St. Louis that the buyer would then be on the hook to make sure the home is able to pass municipal occupancy inspection and laclede gas inspection to turn on new service.
Like a foreclosure I recommend looking at any short sale home in this way:
(List Price + Cost of Repairs) - Retail Price of finished product = Your discount or equity in home at purchase:
Example:  
Home listed short sale for $160,000 (Contract sales price is $150,000) 
estimated work $15000 +/-
Retail average for homes in this area $175,000 +/-
Potential equity at closing is $10,000
Bottom line is if you have time: (Don't need a quick closing), have trusted vendors who can give you clear ideas of potential repair costs, and have a strong understanding of the retail price range of the area you are looking you can make an informed, case-by-case decision on whether pursuing a short sale transaction is right for you.
  • August 27 2013
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Usually, a short dale involves a lot of frustration and ends in a failed deal. I personally don't get involved in them because it's often a waste of time.
  • August 25 2013
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Wow! Thank you, Paul. Did not EVEN know that.
  • August 25 2013
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Profile picture for plevy0003
I would like to add:
1. Check with your lender to discuss the repairs that may be required by code. Loans such as FHA and VA will have appraisal/ inspections that will require repairs to be made to acquire the loan.
2. Due to the time consuming nature of short sales, more and more listing agents are employing third party negotiators to work through the process with the seller's lender. These third parties charge a fee which may be charged to the buyer. If this is the case, make sure you have the funds to pay this fee, which is above the sales price of the home.
  • August 25 2013
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Thank you.That helps me a lot! It sounds almost as risky as buying a foreclosure then.
  • August 25 2013
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When buyers purchase a home for less than the outstanding mortgage loan balance buyers will reap the benefits of a much lower sale price.
There is more risk involved and it can take longer to close a short sale, sometimes as much as 3-6 months by the time everything is said and done. You are allowed inspection period but would make sure it starts after the sale has been approved by lender so you're not out anything if it's not. Typically the seller is not responsible for repairs. Short sale homes are typically sold in "AS IS" condition. Most sellers pursuing a short sale do not have the funds to pay their mortgage so would likely not have funds to make any repairs.
  • August 25 2013
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