Short Sales – How Investors Can Avoid Perils and Pitfalls

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I’m not going to wax poetic today about short sales as a great opportunity for sellers, listing agents, and buyers. While a short sale is all of those things, there are also many perils and pitfalls to purchasing and selling a short sale—including a few that arise when working with investor buyers.

Just like many investments, a short sale being purchased by an investor buyer is just that—an investment. Because the purchase is an investment, many of the emotional ties commonly associated with the purchase of a property are just not there. There is no stereotypical wife thinking about where she is going to put Great Aunt Esther’s rocking chair, and no young parents concerned with the quality of the local schools. There is simply a buyer (or an investment group) planning and calculating the net result of the transaction.

One of the most common things that occurs with the investor as buyer of a short sale has to do with a purchase price. The buyer offers to purchase the property for a specified price, and the offer is submitted to the bank. The bank likely will counter the buyer’s offer. The investor buyer may come up to the bank’s price and an approval letter will come soon after. Sounds good, right? Yet, often times buyers will revisit the property after approval and note additional repairs or issues which would hamper the closing—unless the bank agrees to lower the purchase price.

So, what can be done to avoid this problem and get short sales approved more quickly and efficiently?

It’s simple really. Buyers must conduct their research and do their due diligence prior to placing any offer. They must decide what their offer is going to be based on the comparable properties, the area, and how much they would like to earn at resale (if applicable). BPOs and full appraisals should be completed before submitting the short sale package to the bank and repair bids must be secured by licensed and insured contractors. With all of this information, the short sale negotiator or negotiating agent can provide the best picture to the bank from the very beginning—making the entire short sale process as quick and efficient as possible.

Photo: flickr creative commons by rmgimages

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.