With so many great foreclosure and short sale deals on the market, you may find it hard to resist jumping in and taking advantage. But few are aware of the expensive problems that can accompany short sales. Short sale properties often have hidden issues like structural damage, mold, and plumbing issues. Don’t let this completely discourage you; there are some hidden gems out there. Just keep the following tips in mind and don’t fall for these five mistakes short sale buyers commonly make.
5 Tips for Buying a Short Sale
Don’t Ignore The Problems
Many previous short sale owners faced financial difficulties and therefore were not able to care for the property properly. Many of these homes suffer from more than just neglect. They are leaky, moldy, have termites, have been stripped by thieves, and are dirty. Beware though, that in some areas banks are not required to disclose any of these issues to potential buyers. There have been cases when the house was constructed of defective and recalled materials and the bank did not alert the potential buyers. Many older short sale homes are in worse shape. It is likely that the previous owners had experienced financial hardship for some time and were unable to make cosmetic repairs.
Don’t Skip the Property Inspection
Make sure you are present for the inspection. The inspector will help educate you on the property. Be aggressive in asking questions because the inspector is on your side. Get estimates on expected repairs and when a problem is noted, do your research on it. Renovation costs are always underestimated. In some areas, buyers are going as far as doing property inspections before making an offer, known as a preoffer property inspection. Also, call in special inspectors for more costly issues such as damage to the house’s structural construction, mold, and termites. If the house is particularly old or damaged, consult a structural engineer.
Don’t Ignore Important Insurance and Legal Information
Because most short sales won’t come with a disclosure statement, you should do additional research independently. Try to find out whether any renovations and housing additions have been made legally, have permits and are approved. You don’t want to get fined and cited for construction you didn’t do. Checking in with the neighborhood planning department can help you ensure that there aren’t any neighbor plans to build a large structure next to your house or tear one down. This information won’t be included during a short sale.
Don’t Leave Yourself In a Time Crunch
Short sales closings take longer than traditional home sales. The seller’s lending bank will have to approve the terms and price at which the property is sold. In this economic environment, banks have a lot of short sales to review; so things will take some time.
Don’t Get Emotionally Attached to a Bad Investment
Not every short sale is a great deal. Think as an investor would and don’t get emotionally attached. Think about how much someone would pay to rent the property. Would that cover the mortgage? Also consider how much money you’ll have to put into the house to live in it. Bring along a friend or relative and ask what they think about the property. If it’s not a good investment, walk away.
This is a really great time to get a deal on a short sale property. Keep in mind the above when you are shopping. This way you’ll know for sure you’re getting a great deal and making a good investment.