Can You Short Sale a Property If It Needs Extensive Repairs?

A short sale occurs when your home has lost its original value. Let’s say you bought a house in 2009 for $235k. Because of unforeseen circumstances, the entire neighborhood experiences a decline in prices. Now the value of your home is $185k, which is way less than your purchase price. If such is the case, you need to negotiate a short sale with your lender.

You cannot sell that home in the retail market because that will be a loss. If you sell your home for $185k, you will still have to pay the remaining balance to your lender.

When faced with such situations, most people stop making loan payments. They have no option other than letting the bank foreclose their home or abandoning the house. The 3rd choice is a short sale.

Negotiating a short sale is already challenging. You cannot convince the bank to accept the loss. The situation becomes more challenging when your home needs significant repairs. Wall cracks, water damage, pest issues, roof problems, and plumbing issues are severe defects. These issues can hinder the sale of your home. You have two choices:

  1. Repair and renovate the house, and then sell in the retail market.

Spending money on the renovations of an underwater property is never a good idea. You are already accepting a loss. You don’t want to spend thousands of dollars on repairs/renovations. Furthermore, many sellers don’t have the funds to rehab their properties.

  1. The best path then is to sell your home as-is for a cash price.
Benefits of Selling Home As-Is for a Cash Price
  • No commissions
  • No need to repair the house
  • You don’t have to market the house
  • You can sell a house fast.
How to Pursue a Short Sale When Your Home Requires Repairs?

Submit the Short Sale Package

You will need to contact the lender and let them know that you want to pursue a short sale of your home. Send an appraisal report to show the value of your home has declined over the years. Banks don’t accept a short sale application if you can pay back the loan. Paying the mortgage is your responsibility, and lenders are not obliged to take a loss.

The bank approves a short sale only when a foreclosure is a more expensive option. For the same reason, you need to craft a hardship letter explaining why you are unable to pay the mortgage. Financial hardships may include loss of a job, physical illness, and business loss. Please note that divorce and relocation may not be considered a hardship in this case.

Calculate the Price of Your Home

Next, you need to know the exact price of your property. You can collaborate with a real estate agent. Banks might request Broker Price Opinion (BPO) to verify the value of your home.

You’ll get the market price of your house. However, you need to know the value of your property in its current condition. Subtract from the market price:

  • Cost of repairs & rehabbing
  • Commissions
  • Marketing expenses
  • Appraisal costs and attorney fees

Now you know the lender’s net gain from the sale. The rule of thumb is that the seller doesn’t receive any cash from the sale. Once you know the price & the value of repairs, you can list the home with your agent. Alternatively, if you want to avoid commissions & delays, you can sell your house as-is to a reputable cash buyer.

Click here if you would like us to negotiate a short sale with your lender.

 

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