A short sale occurs when an owner sells their home for less than the amount they owe on it. A short sale can only take place with the lender’s permission because the bank is unlikely to get back the full amount owed to it.
Short sales are attractive to buyers because they can be bargains, but they should be approached with caution. Bankrate identifies five common mistakes made by those who buy short sale properties:
Ignoring problems – Owners may have damaged the home or neglected repairs because of their financial situation. Or, long-vacant properties could have issues caused by neglect.
No home inspection – Go along for the home inspection, and do some research to find out how much needed repairs will cost.
Ignoring legal and insurance information – Short sale properties are sold as is, without the usual disclaimers that come with most homes. You’ll need to do a little research on the home.
Allowing too little time – Short sales take longer than traditional real estate sales. The owner’s lender must approve the terms and sale price.
Falling in love – Be realistic as you visit short sale properties. Can you afford the renovations that will be necessary? If you’re planning to rent, can you rent it for the amount of your mortgage or more?