How to Find Short Sale Homes: A Guide for Buyers

Why would I want to consider buying a short sale home?

The primary appeal of buying a short sale home is the potential to secure a great deal. Since these properties are often sold below market value, you might be able to purchase a home at a significant discount.

For example, consider a scenario where the homeowner originally bought the property when market prices were at their peak. If the market has since declined, you could step in at the right time and purchase the home for much less than its original value, potentially saving tens of thousands of dollars. However, it’s important to remember that while short sales can offer bargains, they often come with additional complexities, such as longer processing times and the need for lender approval.

Another advantage of buying a short sale home is that typically, there’s less competition from other buyers. Unlike foreclosures, which might also offer bargains, short sale homes allow you to tour the property before making an offer. This gives you the opportunity to assess its condition firsthand. Additionally, with the seller’s consent, you can arrange for any inspections you deem necessary, even before submitting your offer. In many cases, short sale homes are also in better condition than foreclosed properties, which may have been neglected or left vacant for extended periods.

What are some of the drawbacks to buying a short sale?

As-is properties: Short sale homes typically are sold in as-is condition, meaning the buyer is responsible for any necessary repairs or updates. Additionally, lenders involved in a short sale may be reluctant to cover all the seller’s closing costs, as they are already incurring a financial loss on the property. This can lead to buyers needing to shoulder more of the closing expenses themselves.

“The only reason you’d want to buy a short sale is you’re going to get a good price on it,” Wallace says.

Patience required: And, buying a short sale can be a real test of patience. The process can take a long time because you’re not just waiting for a response from the homeowner, but also from the bank or lender, which often involves lengthy approval procedures.

“A short sale is short on money, but very long on time,” Wallace says. “I’ve seen it take as long as a year. You’re going to be waiting a long time, and if you have your heart set on a property, you can be very disappointed.”

That’s because even if the homeowner has approved the offer, “the lender can come back six months later and say, ‘No, we will not accept this price.’ So you’re going to be waiting a long time — and you might never get approval.”

Legal considerations: When buying a short sale, it’s essential to be aware of the potential legal considerations that may arise during the process. One critical aspect is understanding the possible tax implications. In some cases, forgiven debt from a short sale might be considered taxable income, so it’s wise to consult with a tax professional to avoid unexpected tax liabilities. Additionally, ensure you review all contractual terms carefully, as short sales can involve complex agreements and stipulations.

It’s also beneficial to seek legal advice to navigate any potential complications. An attorney experienced in real estate transactions can help you understand your rights and obligations, review documents, and address any issues that may arise with the lender or seller. Being proactive about these legal considerations helps ensure a smoother transaction and minimizes the risk of legal or financial surprises down the line.

OK, I’m interested. Where can I find short sale homes?

If you’re considering buying a short sale in your area, your first step should be to find a skilled buyer’s agent. Wallace says that an experienced, well-established agent who knows the area can guide you through the complexities of the short sale process, help negotiate with lenders, and increase your chances of a successful purchase. Use HomeLight’s free agent match tool to discover how we can help you find the perfect Realtor® for your needs, streamlining your buying process for the best outcomes.

Many brokerages offer specialized lists of short sales to clients who express interest, so ask your agent if their brokerage provides this service. Also, talk to your agent about the possibility of gaining access to the Multiple Listing Service (MLS), which will allow you to search for short sale homes in your local area.

You can search for short sales directly through the MLS, where they are often listed and sometimes clearly marked. Listings may explicitly state “short sale,” or use other indicative phrases such as “subject to bank approval,” “notice of default,” “headed for auction,” or similar terms that reveal the property’s status.

Another way to locate short sales is by working with an agent who specializes in them. These listing agents represent lenders and typically handle multiple short sale listings at once. They often hold certification in Short Sales and Foreclosure Resource, or SFR, from the National Association of Realtors. However, even if you find a short sale through such an agent, it’s advisable to have your own buyer’s agent to represent and protect your interests throughout the process.