4 Short Sale Mistakes Buyers Should Avoid

Buying a home on a short sale can help a seller avoid foreclosure and create a good deal for the buyer. But if you are looking for that great short sale deal, avoid these four common mistakes so that your great buy doesn't turn into a bad experience.

Offering Too Little

First, what is a short sale? If a homeowner can no longer make mortgage payments, in some cases a lender will allow the home to be sold and wipe out the mortgage with the proceeds, even if that amount is less than the mortgage balance. The homeowner gets out of debt without foreclosure, and the lender avoids the effort and cost of foreclosing.

Many buyers low ball offers in a short sale thinking the lender will take anything. You might miss your opportunity if you do that. The lender will not accept an offer that does not make economic sense. Typically, if your offer creates a loss on the loan greater than the cost of foreclosing, a lender will not take it. There is flexibility, and market conditions affect the lender's willingness to deal. But if you are trying to buy a good house in a good location for well below market, you run the risk of getting beat out by a more reasonable offer.

Paying too Much

While offering too little is a short sale mistake, paying too much is a worse one. Typically, short sales occur in a declining housing market. If you pay above the home's current market value in a declining market, it will be that much longer before the home's rise in value begins to build your equity. You also could find yourself "upside down" in the home, meaning you owe more than the home is worth.

Get a reliable appraisal of the home. Make a fair offer. Do not fall into the trap of thinking you must have this particular house. There will be a lot of bargains out there.

Not Properly Inspecting the House

Most short sale homes are sold "as is," which means if you discover something wrong with the home in the inspection period, neither the seller nor the lender have any obligation to repair it or lower the price because of it.

Often, a home in a short sale situation has not been taken care of since the owners know they will be leaving. They are not inclined to put their money in it. Have the home inspected. There is nothing wrong with taking an "as is" home with repairs needing to be made. But you must know about needed repairs to know if you are offering the right amount for the home.

Do not rely on an inspection report provided to you by the seller or the lender. Get your own inspection.

Having Inexperienced Help

A short sale is a special niche in residential real estate. Lenders often have the ability to negotiate loan term changes even at the last minute. Make certain your real estate agent and your loan agent understand the specifics of a short sale and have experience in them.