A common piece of advice given to people looking for bargains on homes is to purchase a short sale or a house that's been foreclosed upon. While it's true the purchase price of these homes is typically much less than the current market value of surrounding properties, that doesn't mean it's always cheaper to buy one. Here are a few hidden costs you need to factor in when making a bid on a short sale.
Repair and Renovations
A short sale is the final step before foreclosure. The homeowner and the lender are trying to unload the home in a last-ditch effort to avoid the more severe financial fallout foreclosure would cause. Thus, it's important to understand that if a homeowner didn't have the money to pay the mortgage, it's even less likely the person had the money to properly maintain the property.
Thus, there's a good chance you'll have to invest in renovating the home and making any overdue repairs. The hit to your wallet can be anywhere from a few thousand dollars if the homeowner still cared enough to perform the necessary upkeep to hundreds of thousands of dollars if the home is being sold by someone vindictive enough to actively destroy the property on their way out.
Since short sales are sold as-is, you can't expect any concessions from the seller or the lender on price. The best you can do is get a home inspection, estimate the cost of any repairs that need to be made and add it to the property's price to get the real price of moving in. If it still seems like a good deal after you crunch the number, then by all means make an offer.
Seller Closing Costs
In a normal homebuying situation, many times you can get the seller to cover some or all your closing costs. With a short sale, however, the homeowner is literally days or weeks away from a full-blown foreclosure. Not only is it unlikely they have any extra money to contribute to your costs, but the bank may actually charge you a portion of the seller's closing costs as a way to recoup some of the money it's losing in the short sale.
Thus, you may be hit with higher fees when closing on the home. Like with the cost of repairs, you need to factor in this possibility into your pricing calculations to determine if the home is still as cheap as you thought it would be.
For more help with purchasing a short sale home or assistance finding the house of your dreams, contact real estate services.