Charleston, SC: The Biggest Problems with Short Sales

In the Charleston, SC real estate market, the year 2010 may be remembered as the year of the short sales.  You won’t find an area or price range that isn’t affected by this particular type of listing.  Realtors in the local market started taking notice of short sales in 2009, when many buyers sought these out after hearing that they were a good deal.  However, many Realtors are now predicting that the year 2010 will see the rise and the fall of short sales, since so many Charleston buyers have given up on this type of sale that really was too good to be true.

If you’re considering the short sale route, be aware of a few things before you embark on what may be a long journey.  First, short sales can take up to ten months to close from the date that the contract is ratified.  And even to get the contract ratified, it may take up to a month to hear back from the bank from the time that you make your initial offer.  So, if you already live in the Charleston area and have no real time frame for buying, short sales may be a good route to consider.  But, if you’re relocating to the area, or if you need to time the sale of your current home with the purchase of the next, be wary of short sales.

Second, the list price (or asking price) is usually little indication of the purchase price of the home.  In most cases, listing agents estimate what the home would be worth or use a combination of this estimate with the amount that the seller owes the bank in order to determine the list price.  But until that first offer is made on the home, no one knows what price the bank will approve.  So, if you’re wanting to go the short sale route, try to find listings that have already had a guinea pig, per se, to test the waters for you.  That alone should save you a month or so of waiting to hear back from the bank.  And, in multiple offer situations, we’ve seen the winning bid be more than $50,000 over list price.  So, if the asking price seems too good to be true, it probably is.

Third, in most short sale cases, there is no money for repairs to be made.  In other words, the homes are sold as is.  So, all of the items that come up in the home inspection will be paid for out of the buyer’s pocket.  Also, know that a lot of these homes are going to need work done to them.  If the seller is unable to make mortgage payments, he’s probably also been unable to fix a leaky sink or keep up a termite bond.  So, a general rule of thumb is that for short sales, newer homes are better because they’ll generally require less work to be done.  And, be sure to get a good home inspector so that you know all of the problems with the home before you buy.

Fourth, know that the seller can (and usually will) continue to review offers from other buyers – even after ratification.  So, even if you have a ratified contract, the sellers can terminate your contract at any point up until closing if they receive a better offer.  This is not the case with regular listings, so many buyers are not aware of this difference.

Next, only about a fifth of these that go under contract actually make it to closing.  Usually, these terminate because the buyers get tired of waiting for them to close or waiting to hear a response from the bank.  Regardless, know that it may take several homes before you find one that you can close on.  Chances are that you’ll need to make an offer on the first home, wait a few months, and then find another, and then another. 

Last, sellers in short sale situations are, by definition, in financial distress.  There may be additional liens or other legal issues with the property which the bank is unaware of.  These can, by law, transfer with the property, so be sure to use a good, thorough closing attorney.  Your Realtor should be able to recommend some of the best ones in the area.

Short sales can be a good way to buy your next home, but it’s important to be aware of the problems most commonly associated with them.  If you know what to expect, then you’ll be better prepared to deal with the problems as they come up.  And, be sure to find a Realtor who is willing to work with short sales.  Because of the high fallout rate, many agents are not willing to take these on.