Samantha purchased a small farm home in 2010 as a short sale.
What I Learned From Buying a Short Sale
person found Samantha's experience helpful.
In 2010, my husband landed his dream job — 600 miles from home! We would be returning to South Jersey, only a few minutes from the town where he grew up, and we needed to find a home that suited our needs within our price range. We loved the rural landscape and decided to seek out a small hobby farm. Land was a priority for us, but we also needed to have enough space for our growing family. I wasn’t looking for a foreclosure, but the home that we found was advertised as willing to accept short sale offers.
With a little under 3 acres, a 3,500 square foot home and a separate barn, the home had everything we were looking for, and it fit our budget — if we could get a short sale approved. The homeowner owed just under $600,000 on the property, which was beyond our price range, but the home had been sitting on the market for more than two years, and the lender was willing to deal.
Looking back, I now realize that we had no idea what we were getting ourselves into. Though we had purchased homes in the past and would not need to sell our current property in South Carolina to buy the new home, there was still plenty of paperwork and misinformation to deal with.
A few bumps in the road to farm ownership
Timing - We found and loved this home very early in our home search. While we had started the approval process, we had to step things up quite a bit to meet the seller’s schedule. The bank was understandably anxious to close as soon as possible, so we had to be ready to come to the closing table with all financing and down-payment cash in place.
Financing - When we decided to look for a farm property, we applied for and received approval for a USDA loan. These loans are designed for buyers in rural areas, and while the terms are reasonable, they do have some extra strings attached. Getting the home’s original lender to accept both a short sale and USDA financing took some extra work. The lender was wary of unfamiliar financing (though the actual bank underwriting the loan was a very well-known entity), and the USDA had concerns about the appraisal value of the home. Even though the proposed loan met the program guidelines, the original value of the home did not. We did work things out, but it took some extra negotiation and creative thinking on the part of the bank and lender – and banks are not known for thinking outside the box.
Cold feet - Though I loved the look of the property, the home needed work. The previous owner had last decorated in the mid-1980s, so country blue and pink — and geese with neck bows — made up the interior décor. For any other home in this price range, I would have asked for and likely gotten a discount for the less-than-modern décor. This home was being sold as is, which meant that along with the charming stone fireplaces and great hardwood floors, we also got pink beribboned geese.
As is means as is! - The geese were horrid, but they were not the worst issue the home had. An inspection revealed roof problems and some electrical concerns. One of the fireplaces was clogged with something of unknown origin, and both needed a thorough cleaning. In addition to the common expenses faced by all new homeowners, we would immediately need to address some substantial repairs once the home was ours.
Lack of negotiation - While we were getting a great deal (The bank was accepting less than 60 percent of the amount owed), there wasn’t much room for negotiation. Dealing with a bank is an impersonal proposition, so traditional negotiating skills won’t work here. The bank that owned the home demanded a larger-than-usual deposit — even though our lender did not require it. We had to comply or find a different home.
Great bones, great land - In the end, we did decide to push through all of the difficulties and purchase the home. From the extensive landscaping highlighted by a graceful 300-year-old oak to the turnkey and spotless horse barns, the property had great potential, and I could imagine what it would look like after some repairs and redecorating.
While our short sale story has a happy ending, there were some things I would change if I could go back and do it all over again. I’d choose a more traditional financing method; trying an unusual finance option with an unusual sale type made things more convoluted and difficult than they needed to be. Another family applied for a short sale on this home the same day we did, and the bank chose them for the deal. Two days later, as we started our home search all over again, we got the call from the bank that they would accept our offer.
If I buy another short sale, I will make sure that the realtor I work with is knowledgeable about the process. Our buyer’s agent was not, so there was really no expert on our side. I think having someone on your team who knows the ins and outs of the process would be a huge help, so next time, I would try to find an expert if possible.
I would also insist on a more thorough inspection. While we did have the home inspected, I really should have had the septic system, well water and air quality checked. While we ended up not having problems in these areas, they were a real possibility, and issues with septic, water or Radon could have added up quickly.
Having traditional financing in place prior to making the offer is a must and something I would do next time. The bank did not want to deal with contingencies, wait for approval, or hear about pre-authorizations; they wanted to close as soon as possible.
Buying a short sale allowed us to find the right home for our family, and it gave us lots of room to grow. While the price was amazing, the sale itself was a nerve-wracking process, and it had a steep learning curve. Anyone considering a short sale needs to be prepared for a more complex closing process and for unexpected delays. For us, the extra trouble was worth it to get the home that suited our needs at a price we could afford.