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7 Disadvantages of Buying a Short Sale

The negatives to be aware of

Couple with a real estate agent looking at a short sale house.


Buying a short sale can be a great opportunity to get a property at a reduced price, but it can also have its disadvantages. Purchasing a short sale is a more complicated process than a typical home sale, so there are some unique risks involved when investing in this type of investment property. Learn seven risks of a short sale so you can plan properly and decide if it could be the right investment for you.

1. Long Process

Short sales may not be the best choice for those wanting or needing to purchase a property quickly. Getting a short sale approved can be a long process. They can be completed in as little as a month or could take up to a year to be finalized. Many factors can influence this time table including a lender’s experience dealing with short sales, whether the seller has already been approved for a short sale and the number of lenders involved.

2. Subject to the Mortgage Lender’s Approval

In a typical property sale, the only one who has to approve the sale is the person who owns the property. In a short sale, this is not the case. The current owner is not the only one who must accept the offer.

Since the owner is trying to get their mortgage lender to accept less than they are owed for the property, the lender must approve the sale. Lenders are not necessarily too eager to take a loss on their loan. This process is further complicated if there are multiple liens on the property, meaning you would have to get multiple lenders to agree to the short sale.

3. Lender Could Counter, Reject or Not Respond

Even if a seller has already been approved by their lender for a short sale, there is no guarantee that the lender will accept your offer. They may believe your offer is too low. If this is the case, the lender may counter your offer, flat out reject your offer or they may not even respond to it. This is a significant and real risk considering you could have already been waiting months to even get to this point.

Even if the lender does counter, there is no guarantee that the price is a price you would be willing to pay based on your perceived value of the property. In addition, if there are multiple liens on the property, you will have to get the acceptance of all the lien holders. The first lien holder may accept the offer, but the second or third lien holder may reject it, so there will be more hurdles to getting the short sale approved.

4. Opportunity Cost

Short sales present another risk because the lengthy short sale process could cause you to miss out on other potential purchases. With all your time and resources tied up in short sale negotiations for months, you could miss out on an even better investment opportunity.

5. Property ‘As Is’

Sellers attempting to negotiate a short sale are usually experiencing some sort of financial hardship. Therefore, they may not have the money to do upkeep on their property. This inability to keep up with maintenance may be obvious, or it may lie deeper in structural, electrical or plumbing issues.

When you buy a short sale, you are usually buying the property ‘as is.’ The bank is already losing money on the property, so they will not usually make concessions for these maintenance issues. It is therefore extremely important to get a home inspection so you can uncover any major issues the property may have.

6. Is the Seller Approved?

Just because someone advertises a property as a short sale does not mean they have been approved for one. They may think they qualify for a short sale, but unless they are actually approved by the bank or mortgage lender, this classification means nothing.

Before getting involved in a short sale, you should always verify that the seller has been approved by their lender for one. If they have not, you could be wasting your time or could become involved in a process that will draw on for months or even a year.

7. Lenders Prefer All Cash or Large Down Payments

Another risk of a short sale is losing out on the property to an all-cash buyer or a buyer who is able to put down a large down payment. When agreeing to a short sale, banks and other lenders prefer to deal with these types of buyers. They see them as less risky than a buyer who needs to get a large mortgage in order to purchase the property.