There is no denying that—with the extreme burden of dead inventory on lenders and the government, combined with home-owners being squeezed financially and at risk of foreclosure—short sales are the wave of the current real estate investment market. Short sales are any property transaction in which the proceeds fall short of the amount owed in loans on the property, and they can be excellent opportunities for penny-pinching investors to find a great deal or turn a hefty profit. The problem is, we are entering a relatively unprecedented period of short sale abundance and popularity, and many investors know neither what to expect nor how to protect themselves. The fact is, a short sale is one of those processes that is not regulated that closely, and the transaction can turn sour in the blink of an eye, at any given stage, and at the hands of virtually any party involved.
The number one advice for short sales is to be prepared and have options. The nature of the commodity dictates that, as an investor in short sale properties, you will most likely be dealing with people of pretty significant desperation. This can work for or against your interests (in one case, a seller desperate for cash now may sell for an extremely low price; on the other hand, a seller may pit you against other investors against constant bank loan extensions—anything for an extra week in the house or an extra thousand in the bank. Dealing with desperate sellers is an unpredictable business, and as such investors must always be prepared. Since it’s so difficult to prepare for specific circumstances based on the behavior of an individual, the rule of thumb is to always expect (and plan for) the worst.
The most common issue centered around short sales is the failure of the deal to take place. Many investors find themselves walking through a great (and pricey) neighborhood, only to come across this incredible and out-of-place deal—and they think they’ve found that absolute gem that no one else has discovered. They make an offer quickly to pounce on the low price, and think they have a once-in-a-career deal. Unfortunately, gems are rarely left undiscovered, and you might be the 4th investor that day to come across and make an offer on the home. Short sales can happen quickly, and they are often associated with relatively extreme behavior. So it is extremely important—even moreso than usual—to not put all of your eggs into one property basket (even if it’s the best deal you’ve ever seen). Remember, the seller is—by contextual definition—not the most financially responsible citizen on the block, so always protect yourself and your assets. Have options, and never become so emotionally consumed by a property or deal that you can’t bear the reality that it can be taken away from you for no reason, at the whim or discretion of any of a number of individuals involved.
Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.