As banks became overloaded with foreclosed property after the housing bust, the number of short sales began to rise dramatically. With short sales – when a home is sold for less than the remaining mortgage balance – there is no maintenance or repair work for the bank. Foreclosures, on the other hand, can cost them thousands of dollars to sell. The bank usually does have to write off the rest of the mortgage balance with a short sale but it is often worth it to have a quicker sale with less paperwork. This change in bank strategy has led to short sales making up 14 percent of all residential sales in June, up from 8 percent one year earlier, according to foreclosure data company RealtyTrac.
Yet because short sales offer buyers a great discount – as much as 26 percent lower than traditional sales – investors have been snatching them up quickly these days. The National Association of Realtors believes short sales actually make up a much smaller share of today’s market than 14 percent.
So what can you do if you still want a piece of the short-sale action? Well first, location helps. Certain states were hit harder by the mortgage meltdown and still have a larger inventory of distressed properties. For example, Nevada had the highest rate of short sales in June with 30 percent of its total sales. In Florida, short sales made up 29 percent of all sales, in Maryland the rate was 21 percent and Tennessee and Arizona each had a 19 percent short sale rate. Buying in these states makes it easier to find a short sale.
Speaking of those states, Daren Blomquist, vice president at RealtyTrac pointed out other ways buyers can take advantage of short sales in a Marketwatch article. “Lingering distressed inventory in many markets will continue to provide fodder for institutional investors and cash buyers in those markets,” he said. Cash is king when it comes to these distressed property sales. The larger the down payment you can provide, the better chance you’ll have of winning a short sale bid.
Also, be prepared to wait. It can take much longer to be approved for a short sale than traditional home purchases. But if you can afford to wait, a short sale is one of the best ways to score an excellent deal.