Buying a short sale home is a process quite unlike that of purchasing a home through conventional methods. Differences in time frames, due diligence restrictions and the numbers of negotiating parties can test even the most patient, and although you can and often do save money in the process, this is not always true. Although it is impossible to state with absolute certainty how much you will save buying a short sale home, research, a good home inspector and an experienced real estate agent will go a long way toward ensuring you save the maximum rather than minimum amount.
Calculate Base Savings
Get a base savings percentage by dividing the list price of a short sale home with its fair market value, the price the home would be at or near if this was a traditional sale. While average savings depend on the area in which you live and the specific home, RealtyTrac says that for the fourth quarter of 2012, the nationwide average was about 23 percent between the list price of a short sale home and its market value price. Using the average percentage, if the home lists for $154,000 and has a market value of $200,000, your base savings will be $46,000.
Estimate Repair Costs
Get a presale inspection done on the home just as you would with a traditional sale. Understand, however, that you will most likely be purchasing the home "as-is." After receiving the inspection report, get estimates for necessary repairs and deduct the amount -- plus a contingency fund of 1 percent to 3 percent of the purchase price for repairs the inspection may not uncover -- and deduct this amount from your base savings. Use the inspection report to determine how high your contingency should be. Aim high if the home is 15 to 30 years old or more, or if the inspection uncovers numerous or serious deficiencies
Short sale homes may not include a disclosure statement. Disclosures are important not only for alerting you to problems within the home but for alerting you to external items that can reduce the amount you save. Check to see whether the home lies in a flood zone and, if it does, consider the higher-than-average insurance premiums you will pay in determining how much you ultimately save. Also check for any liens currently on the home and protect yourself from costly citations during inspections on your repairs or renovations by making sure all prior renovations have written approvals on file.
Read the Fine Print
Go over the purchase contract and short sale addendum with your real estate agent. Make sure it protects you from "surprise" expenses at closing time that could reduce or eliminate your cost savings. Follow the advice of your real estate agent but, at a minimum, insist the addendum includes contingencies you can use as an "escape hatch" if it becomes necessary to walk away and a complete listing of all costs you can expect to pay at closing.
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.