What buying a short sale home is really like

Last year, we made an offer, sight unseen, on property more than 2,000 miles from where we lived.

The listing warned that the house was a big mess. The price was a stretch for our budget. And it was a short sale.

We had to be crazy.

We were temporarily living in Hawaii, and although I wasn't shopping for a house, sometimes I browsed the real estate ads back home in Washington state.

This house was a good deal, with an asking price of just more than a third of its listing price five years earlier. It had been a builder's home but had been empty for more than two years.

Before we made the offer, we sent our real estate agent and a few friends over to check it out.

The house was full of belongings left behind, trash and mouse droppings.

With no water or electricity, you couldn't tell what worked. They said it was beautiful on the outside, but it was dark, "kind of strange" and smelled funny inside.

But there didn't seem to be any deliberate damage, just neglect.

2012 Short Sale Growth

State Percentage increase
Nevada 86%
Wisconsin 45%
Washington 28%
North Carolina 24%
Source: RealtyTrac, 2012 data

Another Realtor was there at the same time as ours; it was clear we had competition. Our agent advised us to make an offer greater than the asking price — and get it in fast.

Within 24 hours, we won loan preapproval from a bank and submitted an offer. So did the other party.

Fortunately, their agent didn't advise them to offer more than the asking price, so the sellers accepted our offer.

The big difference between a short sale and a regular sale, as we discovered next, is that you're not just dealing with a seller. The seller's lenders also have to approve. That's why short sales take so long.

One thing in our favor was that we didn't place any contingencies.

Other than a standard inspection clause, we kept it simple. We even agreed to haul off the trash ourselves.

The seller's bank accepted our offer three weeks later. We thought our worries were over.

But then we learned we needed the approval of the second mortgage holder, whom we didn't know existed.

Negotiations between different lenders with claims on a property take time. The first mortgage holder sometimes offers a payment as enticement.

In our case, it took a week for the two banks to come to an agreement.

In the meantime, we worked on our financing.

Getting a contract to buy the house may have been easier because we didn't sell our old house, but getting financing wasn't. Our bank insisted on figuring our debt ratios as if we would be making payments on both houses.

They wouldn't count any rent income from the old house into the equation.

That made it difficult to qualify for a loan, even with perfect credit and 26% down.

I'm self-employed, which had never been a problem before, but it was now. We broke piggy banks left and right to get the loan amount down to $417,000 so we wouldn't have to pay jumbo loan rates, and we still couldn't get the underwriters to budge.

We were running out of time.

Model house constructed out of money.

5 ways to tell if you're qualified to buy a short sale property:

  • You can offer a large down payment.
  • You have been preapproved for a home loan.
  • You don't mind waiting.
  • You can well afford the price you offer.
  • You can afford to make repairs.

The seller's bank extended the closing date but made it clear there would be no further delays.

My agent suggested I start over with a different loan officer, one with a reputation for moving heaven and earth, if necessary.

I told the new loan officer, "I want that house." She said she'd make it happen.

Not only had I fallen in love with the house (never do that!), but we had a financial investment, as well.

As part of the agreement, we paid for septic inspections before closing. We also paid for our own inspections and for two appraisals — one for each lender.

The day before the deadline, we closed.

Unfortunately, it wasn't over yet.

The contract stated that not only did we have to close the deal but to record it at the county by the deadline. The title company sent some of the wrong paperwork, slowing down the process.

We almost lost the deal again.

A regular seller would no doubt extend the contract one more day, but not necessarily a bank conducting a short sale.

Finally, at about 4:45 p.m. on the last possible day, the house was ours. It had taken 3 1/2 months.

We weren't done with surprises.

The fancy washer and dryer disappeared a week before closing. The furnace servicer told us we needed to spend $8,500 on a new system, plus pay $125 per hour to have our crawl space cleaned before he would let his guys work down there. (We declined.)

We paid thousands of dollars for essential repairs, and we spent a month cleaning and hauling junk to the dump before we could move in. The range was missing $800 worth of parts, and someone took the fan out of the exhaust vent for the stove, which added another $800.

I don't recommend specifically looking for a short sale.

It wasn't easy to buy this property, and several times along the way we almost lost the whole deal.

But to my husband and me, it absolutely was worth it.