In today’s market, people view short sale homes as a way to gain instant equity. A short sale is where the amount owned on the house is greater than what they could obtain if the house was sold on the current market.  The owner finds himself in a situation where he can no longer make the payments on the house.  So, he goes to the bank to see if the bank will accept a lower amount than what is owed on the house and if the bank will release the seller from the lien when the house is sold.  Caution should be used when making an offer.  Using an agent who’s familiar with the short sale process is absolutely critical.  
A few guidelines would include the following:

Avoid Homes with more than one lien held by multiple lien holders. Negotiating with two different lien holders can be extremely challenging.  The primary lien holder will receive the lion’s share of the funds while tossing remaining crumbs to the junior lien holders.  The primary lien holder may have a maximum amount allowable to be paid to the junior lien holders.  And, the junior lien holders may have a minimum amount they will accept.  That results in a standoff between the two lien holders which will lengthen the time to close a short sale and might even stop the short sale process altogether.  A buyer in this situation will have wasted a lot of time and may end up missing other potential opportunities.  Find out the number of lien holders even before considering a particular home.  Good practice is to inquire about the current negotiations with the lien holders.  A little bit of research before making an offer will go a long way towards having a successful short sale buying experience.

A home with a pre-approved bank price considerably speeds up the short sale process.  Very often, the first person submitting the first offer to the bank will walk away from a short sale for many reasons.  After the bank has evaluated all the offers and selected one, other buyers often bail and move on to other homes.  If the sale fails and the house comes back on the market, the bank is usually without any buyers and may be more eager to unload the property.  The bank will have done an analysis of the loss they willing take on the property.  And, will come up with the bank approved short sale price.  So, if you lose out on a short sale, have the realtor follow up until the house actually closes because it could come back on the market with an approved price.  And, then the short-sale approval process could be much shorter when making a reasonable offer.
Just because a bank wants a certain amount of money, it’s worth a shot to push the bank on exactly how much of a loss they are willing to take.  It’s is a good strategy especially if you’re willing to walk away from the negotiations.  If you feel like the short sale home is on your “A” list, pushing the bank may not be a good idea—especially if the bank has already approved a specific price.

Don’t take the due diligence process lightly in an effort to speed up the transaction thinking you’re already getting a great deal.  Often the property is sold in an “as is” condition.  A home inspector can discover a lot of things with homes.  But, they can’t tell you everything.  Consider having a specialist come to inspect any red flags which have been identified by the home inspector.  Take every potential problem spot in a short sale home seriously.  You never know how deep the rabbit hole goes until you take a closer look.

Short Sale homes often will be vacant and no one maybe be particularly interested in maintaining the property. The realtor might not have the time to winterize the home, inspect the home regularly for problems, or even do simple home maintenance such as mowing the lawn.  A roof with minor damage can turn into a huge problem over the winter.  A small water leak in a roof can cause a collapse in the ceiling thus causing major water damage to the floors below.  Sometimes, that water damage can cause black mold issues which the realtor may not know about until months later.  I’m often surprised how little some sellers and realtors actually know about the condition of the house they are trying to sell.  Thousands of dollars of repairs may be needed to repair damage caused from failure to be aware of what’s going on with the house.

Short sale homes may have uninvited visitors from squatters, vandalism, and insects.  A buyer who discovers a swarm of bees has taken up occupancy in a home may not appreciate the extra benefits the bees would provide.

Don’t put all your eggs into one short sale basket.  Waiting around for the bank to accept your offer for that special house could leave you disappointed in the end not to mention the one to six months of waiting.  Even after that initial first offer on a home, keep looking around at other places.  Identify more than one short sale home of interest.  And, don’t tie up your earnest money on a short sale until after the bank has accepted your offer if that option is available. There is no risk in doing offers on multiple short sale homes. There’s many ways for a buyer to walk away from a short sale without even having to give a reason. But, keep a close eye on the contract deadlines.  Missing a deadline can result in the loss of the earnest money.  Any realtor worth their salt will never let a buyer lose their earnest money—ever.

The listing price may not be the price a bank will accept.  Realtors want to get as many offers on the house as possible.  They do that by lowering the price of the home to make it seem like a super deal to attract as many buyers as possible.  The realtor’s listing price may not be the price the banks will accept.  Banks will do their comparative market analysis and try to come as close to market value as possible.  The offer which is finally accepted may be much higher than the initial listing price.  That sweet short sale may not end up being such a great deal.

Having more cash in the offer will increase the chances of an offer being accepted.  The more cash you can include in the offer the greater confidence the bank will have that that you can actually close on the home.  A full cash offer or an offer with at least 20 percent in cash will have an advantage over someone who just comes up with the minimum 3 ½ percent down payment in the case of a FHA loan.  The bank doesn’t always go with the highest offer but will also look at the strength of the offers.

Be ready to move fast when looking for a short sale.  Every morning realtors send out automatic email messages to their clients with the most recent homes coming on the market. For the first few days a home will have a lot of visitors coming to see the home.  Have a clear idea of what you are looking for in a home. Then, you will be more confident to move quickly to make an offer.  The first person to have an offer submitted often has an advantage especially when making a strong, reasonable offer.

Get an edge on the competition. Search for homes in the evening to identify short sale homes just coming on the market. Try to view the home that evening and submit an offer before the automatic email messages get sent out the next morning.  This strategy may be difficult to make happen.  When it does happen it could give you the advantage of having the first offer submitted to the bank.
Short sale homes can occasional be a super deal and can give buyers instant equity.  They can also be extremely long and frustrating.  Buyers can walk away disillusioned and without anything to show for the effort.  Other opportunities may have been lost while waiting for a response from the bank.  Buyers should consider looking at homes with comparable prices which might not take as long to close and where the owners may be making a better effort to maintain their home to sell.