Patience required for homes on market for less than is owed....

Those searching for the best housing bargains on the market might consider buying a short sale property.  But there's an important qualification for buyers interested in going this route: they need plenty of patience.

In a short sale, a home owner's lender agrees to accept less than is owed on the mortgage for the property.  It's a useful alternative for borrowers underwater on their mortgage and on their way to foreclosure.  As home prices continue to decline, short sales have become a viable option for those who need to sell.

"Over the past three to six months, the servicers have really become aware that short sales are the best way to reduce their losses...when a modification is not an option," says Travis Hamel Olsen, president of National Short Sale Center, a company that facilitates short sales nationwide on behalf of homeowners and real estate agents.  The short sale option is also less damaging to a seller's credit than a foreclosure, he says.

Attractive to buyers

A short sale can also be attractive to a homebuyer because the lender often will accept bids on the property that can be 10 percent or more below the market value, determine by the prices of comparable, nearby properties, Olsen says.

Although the mortgage balance is probably greater than the price a seller could expect in a traditional sale, the lender may be willing to take less than it's owed in a short sale if it can avoid the further expenses of foreclosing and taking over the property.  The savings, however, often come at the expense of a homebuyer's time.

"Short sales should be called long sales," says Leslie Tyler, vice president of marketing for ZipRealty.  "In some cases, it could take months for a buyer to hear back from a lender."

Worth the wait

For Kristine and John Williams, the savings seem to be worth the wait.  Kristine Williams says they've found "the prefect house" in Brentwood, although the prcess is taking longer than they originally thought.   The couple waited four months for an answer from the bank, then had to revise their bid lower as the market continued to sour. 

Their current bid is $550,000, on a home appraised at about $1 million three years ago.  They're hopeful the current bid will be successful, but realize it could be months before they find out if the offer is accepted.

"In general, it takes a minimum of two months to get a response from the bank whether they will accept or counter your offer," says Rob Jenson, CEO of the Jenson Group, a Las Vegas-based real estate firm.  "That process could take longer."

It is worth it?

Are the savings worth it to you?  Consider these five caveats before shopping for a short sale:

1. You'll wait in the dark: Perhaps just as frustrating as the wait time is the fact that you likely won't be privy to details as the deal is progressing.  That could mean going months without an update.

There are reasons for the wait: A lender could be considering multiple offers.  If the seller had both a first and second mortgage, that could also make the process more complicated.  The Williamses ran into both scenarios, slowing their process down- and that's not unusual.  The homeowner also has to prove their financial hardship to the lender.

2. Banks will make you a deal, but within reason: There are deals to be found in short sales- but don't expect outright steals.  A buyer needs to make a fair offer, based on comparable homes that have been sold recently, Jenson says.  The offer should be aggressive, but not ridiculous, he says.

3. Sales are "as is": In a short sale, it isn't likely that you will get allowances from the seller repairs that are needed, as you might in a traditional sale, Jenson says.  Do a home inspection and know what you're getting into, but remember that your bid is for the property "as is."

"The seller will not give you a credit for repairs," he says.  "The last thing they will do is make repairs."

4. Have a backup plan: Even if you decide to bid on a short sale property, it might be best to keep looking any way.

"There is no gurantee with short sales, and if the buyer is smart they will put an offer on a short sale they like and continue to look at properties that interest them," Olsen says.  It isn't uncommon for people to find a home they like better and kill the short sale deal, says Dennis Green, general manager of

That says, when an offer is accepted and earnest money is put down, remember that you risk losing those funds if you decide to walk away and buy another home, he added.  It may take months before the deal closes, even after the offer is accepted.

5. It's not only about price: "One thing to not lose sight of is you're buying a house to live in.  Buy a house you like," Tyler says.  She recommends that prospective buyers remain open to properties of all types- short sales, bank owned and traditional sales- and compare price features.

A short sales is only a bargain if it's a home that you truly want to live in- not something you're drawn to only because of its low price tag.

Hoak, Amy. "Short sale can be long process." Sunday Homes [Bay Area] 26 Apr. 2009, sec. 1: 1-4.