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Articles  >>  10 Reasons NOT To Buy A Short-Sale

10 Reasons not to buy a short sale in the Southern Utah Real Estate Market

In the St. George Utah real estate market, there has been an increase of short sales on the market due to the current economic conditions. Many sellers owe more on their mortgage than the current market value of the home. The lenders then consider a short sale and agree to take a payoff amount that is less than what is owed on the mortgage if the home sells.

Short sales in St. George Utah may seem very attractive and like the deal of a lifetime, but that’s not always the case. You may want to consider purchasing a home which is not going through default to avoid the nuisance of a short sale.

Here are 10 Reasons Why Buyers Would Not Want to Purchase a Short-Sale when considering Real Estate in Southern Utah:

1) The Seller Ended up Paying Too Much
If a home at one point sold for $300,000 and is now being offered at $250,000, the purchaser is not going to gain an automatic $50,000 of equity. It simply means whoever bought the home for $300,000 paid more for the home because of an increasing market.  Once the market falls, the price drops again and the seller no longer has equity.

2) The Seller Ended up Borrowing Too Much
During the big boom of the market, many banks were quick and willing to loan money with extreme conditions. Some of these conditions were allowing purchasers to over mortgage the home. This meant that borrower’s loan exceeded the market value of the home. This can happen because the appraisal has determined the home value as higher than it truly is. Not all appraisers would value give the same value to the home. In some cases, although illegal and unethical, banks pressure appraisers to calculate the home value at the amount the owner could borrow.

3) There can be Harsh Conditions
Sellers don’t always qualify for short sales. However, many times unethical and/or inexperienced Agents may steer a seller towards a short sale. The seller must have gone through a hardship and provide the necessary documentation to a lender to be considered for a short sale. There are times that the listing agent just lists the home as a short sale without ever going through the proper steps of going to the lenders and pre-qualifying.

4) Home Actually Sell at Market Value
It’s important to realize that lenders aren’t naive and unprepared when it comes to short sales. They know very well the home value and typically do the right research to determine the value. They will request a competitive market analysis, referred to as a CMA. They may also request a broker price opinion, referred to as a BPO. Sometimes the lender may consider taking a home in foreclosure over accepting a short sale offer. They do this because they believe they can get a higher price and then will wait out for that higher price. That price will be fairly close, if not at market value. You will typically see the lender accept the short sale offer when the home is as close to market value as possible.

5) Homes are Sold “As Is”
In most cases, the lender is not going to pay for the typical items that a seller would normally pay for. This includes deferred maintenance, protection plans, and any needed repairs. The reason why, is because lenders up paying the seller’s side of closing costs on the transaction.

6) The Time it Takes to Close on a Short Sale
Due to the high amount of short sales and foreclosures on the market, the documentation, and the qualifying process, offers can end up taking two weeks to six months to get any sort of response from the bank. It takes even longer if the seller has two mortgages on the home since BOTH lenders will have to agree to the terms.

7) Conditions Can be Changed
In many situations, lenders will reserve the right to make renegotiate the sale terms any time during the transaction. This usually happens when laws are passed and new information is given to the lender, and they will in-turn attempt to change the current contract. They have the necessary legal assistance available to use when needed. Most regular home buyers don’t have that, which can put the buyer at a disadvantage.

8) The Buyer Can End Up with More Closing Costs
As mentioned before, lenders aren’t willing to pay for much more out of their pockets since they will most likely losing money on the loan. Even standard seller closing costs, like transfer taxes can often be put onto the buyer. You will also have to pay for any specific inspections requested.

9) The Buyer Doesn’t Have Control of the Transaction
You must be patient with the transaction if you plan on buying a short sale. You will have to work at terms of the seller’s lender. If you need to close escrow by a certain date, a short sale is not the best way to go.

10) The Seller isn’t as Motivated
A short sale ends up looking the same on a credit report as a foreclosure. When seller’s figure this out, they are typically in no rush to move out and consequently have no incentive to collaborate in the short sale transaction. It can end up being a hassle and doesn’t make for a very good home buying experience.

If you have any additional questions about short sales, foreclosures in the St. George, or Southern Utah Real estate market, please contact us 


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