In today’s seller’s market with low inventory and rising home values, finding a home that you can afford can be a challenge.

The hurdles don’t appear to be diminishing.

According to Lawrence Yun, chief economist for the National Association of Realtors, January’s sales gains signal resilience among consumers even in a rising interest rate environment.

Rather than be left out of the market, many potential buyers are turning their attention to distressed properties, including short sales, to find a home at a price they can afford.

Distressed Property House.

Short sales occur when there is more debt on a home than the property itself is worth. If the property owner is considered to have substantial hardship that the debt cannot be repaid in full, the lender will agree to take less than the debt amount and forgive the borrower without foreclosure proceedings.

Short sales were on the market the longest at a median of 108 days in January, while foreclosures sold in 51 days and non-distressed homes took 49 days.

According to NAR, distressed sales – foreclosures and short sales – were 7 percent of sales in January, unchanged from December and down from 9 percent a year ago. Five percent of January sales were foreclosures and 2 percent were short sales.

Foreclosures sold for an average discount of 14 percent below market value in January (20 percent in December), while short sales were discounted 10 percent (unchanged from December).

According to CoreLogic’s Cash and Distressed Sales Update, short sales made up 2.6 percent of total home sales in the U.S. in October 2016.  When this is paired with real estate-owned sales, or those sold by the lender after a foreclosure has occurred, distressed sales made up 7.7 percent of all sales, the lowest share since October 2007. This is well below the January 2009 peak, when distressed sales made up 32.4 percent of all home sales.

“Competition is likely to heat up even more heading into the spring for house hunters looking for homes in the lower- and mid-market price range,” added Yun.

However, purchasing a short sale property may have several hoops a buyer will have to pass through.

Nathan Bangs, a Realtor and certified distressed property expert for Keller Williams Realty in Tampa, Fla., points out that while the short sale may be a great deal, there are complicated steps required to complete a short sale.

“They hear ‘short sale,’ and they hear ‘fire sale,'” Bangs told U.S. News & World Report.

Moreover, not every buyer is a good candidate for a short sale.
Anyone considering purchasing a home as a short sale must have plenty of time, cash and other options.

A short sale can take longer to get third-party approval from all lenders involved.
While you don’t have to be a cash buyer, lenders may offer resistance to the idea of financing a short sale.

Short sale shoppers also want to keep their options open by watching for other listings.

For potential flippers, short sales were once attractive, but that gap is narrowing. Today, home valuations have increased to the point that there is little difference between the purchase price and what they may be able to realize after renovations, cutting down on profits.

As a result, investors should look out for good deals on fixer-uppers in all types of sales.

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