Plainfield IL, Naperville Illinois Real Estate - The ABC's of Short Sales

The ABCs of Short Sales

A short sale is what I like to call a "less bad" alternative to foreclosure. It works like this: the homeowner sells the home for a market price that is less than - short of - the amount the homeowner owes on the mortgage. The owner then pays the lender - who, of course, must agree to the deal - and the lender forgives the difference between the sale price and the mortgage amount (so the homeowner doesn't have to come up with, say, $30,000 in cash).

Why would a lender agree to such a deal? Because the actual process of foreclosing on a home is very expensive for the lender - often costing upwards of $25,000 and a lot of time (time that the lender isn't getting paid interest and principal on the loan). So it can often be in the lender's best interest to simply cut its losses and sell short.

You can invest in short sales

A short sale can be a real win-win-win for you - the investor, the homeowner, and the lender. When you buy a house after the owner is already delinquent (meaning more than 90 days past due, and/or the lender has already started the foreclosure process) but before the lender actually forecloses on the home, it's called a pre-foreclosure, and you'll be part of a short sale. Here's how to do it:

1. Know your market. If you don't already live where you plan to invest, make sure you get to know your investment market well - what neighborhoods you should stay away from, where great hidden deals might be, where the hottest new development is, etc.

2. Develop an investment strategy. Pre-foreclosure investing is like any other type of real estate investing - develop a strategy for what you want to accomplish, the risks you are willing to take, and how long you plan to be investing and then stick to that strategy.

3. Develop your best practices. There are a lot of pre-foreclosure buying techniques out there. Decide which is best for you, given your investment strategy.

4. Be a bit skeptical. Just because a home is in pre-foreclosure doesn't mean it's automatically a good deal.

5. Ask for help. Pre-foreclosure investing takes a lot of work. Invest in the help of a trustworthy team. Leverage a real estate agent experienced in short sales to help you determine how to make an offer that's fair for you and the seller (the bank), based in part of what other similar pre-foreclosure or foreclosed homes in the same neighborhood have recently sold for.

6. Make friends with mortgage lenders. Often, you'll get the best deal if you can negotiate a good purchase price with the seller and get the lender to forgive a portion of the debt (the difference between the sales price and the loan balance, for example).

7. Move fast, but not too fast. You'll need to act quickly once you find a pre-foreclosure property that you want to buy - before other investors beat you to it. At the same time, you don't want to be too rushed or you may make a decision you'll regret later.

8. Be committed. Pre-foreclosure investing is not for the weekend investor. It takes discipline and commitment. Even with the help of foreclosure listing services, you'll still have to do a lot of legwork to contact the owner, arrange the deal, fix up the house, and re-sell it before you see your investment return.

9. Know the law. There's more legalese involved in a short sale than in a traditional home sale. Plus, foreclosure laws differ from state to state. Read up on your state's foreclosure laws and ask your real estate agent to recommend a good real estate attorney with experience helping people purchase homes in pre-foreclosure.

10. Remember price + 5% (at least). Pre-foreclosure homes tend to need repairs- sometimes minor, sometimes major. Always, always have the home inspected by a professional home inspector before you sign a sales agreement and add in the cost of the repairs the inspector recommends. If you only think about the purchase price when you're calculating potential return on your investment, you'll be sorely disappointed. Add at least 5% - or better yet, get a quote on repair costs from a professional contractor.

About the author:

Cheryl Bowers is a Chicagoland Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of real estate in Plainfield, Naperville, Aurora Illinois or any place in the country. Cheryl has created a team of professionals throughout the Chicago suburbs to ensure that you enjoy a smooth transition to your new area. Please visit www.cherylbowers.com for your real estate needs. Please give me a call if you have questions about the Plainfield, Naperville, and Aurora real estate market.

P.S. If you are listing your home as a short sale in DuPage, Will, Kane, or Kendall Counties in Illinois make sure you hire an agent who knows how to do short sales and has the experience to get the job done. Call me at 630-712-1921 to find out more about Short Sales in the Chicagoland Area.

Cheryl Bowers, REALTOR® (630) 712-1921

(Copyright © 2009 By Cheryl Bowers, Realtor. All Rights Reserved.)