Many homes in South Africa are listed under unfortunate labels such as short pays, pre foreclosure, or short sales. These terms imply that the seller has changed their mortgage and may negotiate a deal with their bank so as to avoid foreclosure of their property. In a short sale, the bank accepts an amount that is less than what is owed on the mortgage. The bank is benefited in that it avoids having to repossess the property. The process is, however time consuming, expensive and stressful for the owner.
With short sales, the bank does not own the property, as is the case with foreclosures. However, the bank does need to approve the sale since the bank, and not the seller, incurs a loss on the property (which is usually sold below market value). The effect is to generate the feeling that the purchaser is buying the property from the bank. In order to indulge in short sale investments, one needs to be patient since the process can be more time consuming than foreclosure transactions.
The short sale contract specifies that the terms are susceptible to the approval of the mortgage lender. In any other transaction, the only party that approves the sale is the seller. The contract specifies that the property is being bought ‘as is’. Although there may be clauses that allow you to escape the deal if there are considerable problems revealed by an inspection.
Short sale property transactions entail several months of waiting before the banks respond to offers. According to the experts, you can reduce the waiting time by giving the bank a deadline. A lot of experts agree that short sales are great for buyers as they are priced below market value which allows the buyer a wonderful opportunity for getting a good equity deal, especially if they are making first time purchases. This also applies to homes that are about to become bank repossessed property. These homes all have one thing in common: They are distressed properties.
Other real estate analysts are of the view that below market value properties, or homes that are about to become repossessed property, cannot be obtained at good rates, since banks are not interested in selling them. Hence, buyers need to do a comparable market analysis before setting or agreeing on a price for a short sale. On the flip side, a short sale property is less likely to be ransacked since it is not owned by the bank. That’s because the seller still lives there, and while the place might be in want of refurbishment due to the owner’s dilapidated finances, the property will not necessarily be run down. Hence, risks of vandalism are low.