The Malibu real estate market presents many opportunities for buying luxury homes and selling them for a profit, but finding ways to buy low and sell high is one of the biggest challenges of real estate investing. However, short sales give buyers the opportunity to buy at prices that are often below market value. Although this process has some risks for both buyers and sellers, the potential rewards are worth the groundwork required to find these low-priced properties.
What is a Short Sale?
When a homeowner gets behind on mortgage payments, the lender may agree to a short sale instead of foreclosure. “Short sale” means that the bank will accept a sum less than the amount due on the mortgage. If a homeowner still owes $200,000 on a loan, the bank may be willing to accept $175,000 in a short sale. Not all banks will agree to this type of sale, so homeowners must get permission before going through the process.
Benefits of Short Sales
Malibu short sales have one major benefit for buyers. This type of sale allows a buyer to purchase a home for less than the market value. If a homeowner bought a house for $600,000, owes $350,000 on the mortgage and convinces the bank to accept a short sale amount of $300,000, the buyer stands to make a considerable profit.
Risks of Short Sales
Short sales have risks for both buyers and sellers. A buyer can ask that the bank not issue a negative report to the major credit bureaus, but the lender is under no obligation to agree. Some lenders will also sue homeowners for the deficiency, which is the difference between the amount owed and the amount of the short sale. If a homeowner owes $100,000 on the loan and sells the home for $50,000, the lender could pursue the homeowner for the $50,000 difference.
Buyers also need to be aware of the risks associated with this type of sale. If the seller borrowed too much money, the home may not even be worth the short sale price. Additionally, not every seller qualifies to do a short sale. Buyers must be careful to work with reputable Malibu real estate agents to ensure that they are not wasting their time pursuing a deal that does not qualify as a short sale. Lenders also have the opportunity to change the terms of the sale before the deal closes. Market changes and new lending laws can cause buyers to lose money on this type of deal.
Timeframe
Buyers should set aside at least two months for the process of a short sale. The process starts when a notice of default is filed against the seller. The seller must work with the lender and submit all required paperwork before the lender will even consider a short sale. Once all the paperwork has been submitted, it may take up to two months to receive a response from the lender. If the seller has two mortgages with different lenders, it may take even longer to complete the process.
Russell Grether of Coldwell banker Previews International is a real estate agent based out of Malibu, CA. He specializes in Malibu real estate, Malibu homes for sale, Malibu properties, Malibu land for sale, Malibu rentals and surrounding area real estate from Montecito to the Pacific Palisades.
