Even in Bridgewater the expression “short sale” seems to be popping up more and more. You see it in economic reports, the local newspaper, on real estate web sites, and you may even have friends or relatives who have looked at or purchased a home that was a short sale. But what exactly is a short sale? Is a short sale always a good deal? What are the potential problems with buying a short sale?

If you are thinking about buying a short sale in Bridgewater or some other area of Central New Jersey here are some questions you should ask your REALTOR.

What exactly is a short sale?
A short sale happens when a homeowner is “underwater” on his or her mortgage.  (The house is worth less than they owe on the mortgage.)  They have usually missed at least three months of payments to the bank or lender and they are trying to make a deal with a bank in hopes of avoiding a foreclosure. The bank that holds the mortgage allows the owner sell the home for less than he or she owes on the mortgage.  A short sale agreement allows the bank to avoid a foreclosure process that in New Jersey can take up to two years in many cases. The short sale allows the homeowner to escape the effects that a foreclosure has on their credit score.

How is a short sale different than a foreclosure?
In a short sale, the owner is probably living in the home while it is for sale. The owner is usually significantly underwater in the home so the hope of selling for what they owe is out the window. When a home is marketed as a foreclosure, the bank has already evicted the homeowner and taken possession of the house.

When a potential buyer places a bid on a short sale property, the offer must be accepted by both the homeowner and the bank. If there are two mortgages on the home (commonly called a second mortgage or home equity loan) all banks must sign off on the offer. In a foreclosure the offer must only be accepted by one bank since they have taken possession.

What should you consider if you put an offer on a home that’s a short sale?
Patience is the key to short sales. Since there are multiple parties involved (banks, homeowners, lien holders, etc.), the negotiation process can take a lot longer than in a traditional purchase. Also, many lenders only accept “as-is” contract offers on short sale properties. Basically they will not do any repairs to the home.  (Make certain your contract offer allows for a home inspection period so you have a clear idea of what you are getting into with your new home.)

Will you save money buying a short sale property?
Especially for first time buyers, a short sale can be a great way to get into a home.  It is also a great way for move up buyers to find a place in a more desirable neighborhood at a good price.  Keep in mind that your real estate agent should be able to help you find comps in the area so you can submit a winning offer.

Is a short sale right for you?
A short sale is best suited for buyers with patience. Short sales can span many months.  The hurry up and wait aspect drives many potential buyers crazy. Often short sales attract multiple offers, including all-cash offers from investment speculators. If your timeline is flexible for moving and have found a home you love, buying a short sale can get you the home of your dreams for less money than you might think.

For a list of short sale properties in Bridgewater or Central New Jersey in general just drop us a line at mike@mikedowner.com.