Buying a Short Sale House - Advantages, Disadvantages, & Tips

Buying a short sale house has many advantages but it also has many disadvantages. It is right for some and wrong for others.

With a few tips and a complete overview of how a short sale usually goes, you can make the best decision for you and compare this option with the other 2 common house buying options: a foreclosure or regular (owner) sale.

What exactly is buying a short sale house? A short sale is between an owner sale and a foreclosure. The current homeowners no longer want to make payments on the mortgage. Some reasons may be that the house is worth more than their mortgage and has negative equity. The other common reason is that they are aware they can no longer afford the mortgage payments.

After coming to this realization and decision, the current loan holders (homeowners) engage the bank that they have the loan with and explain the situation. This is in hopes the bank will work with them to get out of the mortgage without further damage to either’s checkbook or bottom line.

If the bank agrees it usually works out advantageously for both. The homeowners will not go in default and the bank hopes to take a smaller loss on the loan than it would if it went to foreclosure.

To put it simply the deal is this: The owner can get out of the mortgage, not have their credit wrecked, won't be sued or taken to court BUT they have to help sell the house for the bank following all the bank's conditions.

If the house gets sold under the agreement both parties make out better than if it were to go to foreclosure. If the house does not get sold or the bank changes it's mind at any time it's goes into foreclosure.

The bank has total power to dictate whether they still want a short sale or want to take it to forclosure.

A foreclosure is when the bank takes ownership of the property and there is a balance owed on the house that they try to get from the old homeowners. It usually results in bad credit, court, and even getting sued. The first step after the bank puts a house in foreclosure it that after all the necessary paperwork it goes on the auction block.

If it is not sold at auction it goes on the market "as is" and they usually want a large some of money up front for someone to buy it. Buying a foreclosure can yield a good deal but is very risky. One cannot usually look at or get the house professionally inspected. You typically need a lot of cash up front to buy a foreclosure and they generally exclude people with FHA backed loans.

Buying a Short Sale House Advantages:

1) First and foremost going the short sale route will most likely allow you to buy the home for less than it's worth or it's appraisal. You can generally get a home at a 10-25% discount than it's worth. This allows some to get a home in a better area, school district, and increase their net worth almost instantly. It a home appraises for 200K and you purchase it for 180K then the day you move in one has 20K in equity.

2) You are doing the previous homeowners a favor. They are released from the chains of the bank and can move on.


Buying a Short Sale House Disadvantages:

1) There is a limited amount of short sale properties. Finding the right house becomes more of a challenge because you have less to pick from.

2) The process of buying a short sale house is very time consuming and can take from 3 months to 12 months. The paperwork shuffling and waiting on the bank to respond to all legal documents is excruciating. There really is no rushing a bank. They are not realtors and act as such. Almost everything takes over a month. Putting an offer in and hearing if it is being considered alone can take over a month. You just never know what is going on behind the scenes. If you are not patient a short sale is not for you. Similarly if you need a place to move into anytime soon or on a certain date then buying a short sale house is not a good decision.

3) It is very risky. A person bidding on a short sale house risks 2 things: time and money. Like mentioned above the bank can at any time "Pull" out of the shortsale without any repercussions. So for instance 6 months into waiting to hear if your bid was accepted the bank pulls the house off the market and puts it into foreclosure you just wasted 6 months. Also if you paid for any kind of inspection over the course of that time you will lose that investment.



Buying a Short Sale House Tips:

1) If interested in short sales read the book: Short-Sale Pre-Foreclosure Investing: How to Buy "No-Equity" Properties Directly from the Bank -- at Huge Discounts It is well worth the time and money and will save you grief later.

2) When searching ask your real estate agent to seek these type of properties out for you. They can do this much faster than you can.

3) Be patient and do not be overly disappointed if the deal does not work out but it does happen often. Buying a short sale house has more risks than buying a house off of an owner. Remember you are buying from a bank in a short sale. There are numerous "approvals" from other third parties.

4) Last but not least when putting in your offer try to take into account others that may also have or will be putting down an offer. Banks will go with the offer or bid that is the best deal and the least work. For instance if you put down 5K and ask for 5K sellers assistance and have an FHA loan and another person who put down 10K with no sellers assist with a conventional loan the bank will go with them.


Buying a short sale house can be risky but rewarding. With the above descriptions and tips you are well ahead of most. The more you know and the more tips you have will make the process go as smooth as possible. We hope you enjoyed the buying a short sale house article.


Good Luck! and be sure to check out our other popular and related articles below:

Very Important House Buying Tips

Drywall Tips for the House

Drywall Finishing Tips for the House

Wood Burning Stove Tips for the House

Money Tips

Smart Money Stock Investing Tip

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