If you want to purchase a house at a lower price, even less than the actual market value, buying a house on a short sale can be the go-to option for you. However, it comes with some unique disadvantages. Before purchasing a house on a short sale, make sure to check these disadvantages.
Top 5 Cons of Buying a House on a Short Sale
1. The Process is Very Long
One of the major disadvantages of buying a house on a short sale is that buyers have to wait months to close a deal. Again, if you’re unlucky, you may have to wait for a year to buy the property. Please note, there are several factors that affect the time frame, such as the lender's experience in the short sale, approval for the short sale, etc.
2. High Opportunity Cost
Due to its lengthy process, the opportunity cost of the short sale is higher than the other real estate.
When you decide to buy a short sale property, you'll have to lock in all your resources and money for months. During this time, you may lose some great investment opportunities that could give you more return than the short sale property. That's why before investing in a short sale, prepare yourself for this type of situation and ask yourself whether you can really afford such temptations or not.
3. Requires a Large Down Payment or All Cash
If you're thinking about buying a short sale property with a mortgage and a minimal down payment, you may not be able to close the deal. Because lenders or banks prefer all cash or huge down payments in the short sale and consider mortgage payments as high risk. Just because you're paying with a mortgage, you may lose the deal to a buyer who is paying the same amount of money but in all cash.
4. The Property Maybe in Bad Condition
People who sell their house on short sales are usually in financial distress. And in financial distress, people generally don't spend their money on property maintenance and repairs. This means that if you buy a house on a short sale, you may have issues like structural problems, electrical problems, etc.
Again, when you buy such a house, you'll have to spend extra money on the repair cost, which sometimes eliminates the purpose of buying a house on a short sale. It's recommended that you do a professional property inspection before finalizing the deal.
5. Requires Approval from Mortgage Lender & Other Parties
Only the homeowner needs to accept the offer and receive the payment in regular property buying and selling. But in short selling, it's entirely different.
In short selling, lenders and other parties will have to accept the offer instead of the homeowner. As lenders have to sell the property at a loss, they may not be eager to close the deal quickly. Lenders usually prefer to wait and sell the property to the highest bidder. As a result, the process becomes lengthy. Again, if there are several liens on the house, they will have to accept the offer separately, which will eventually prolong the home buying process.
