Demystifying the Risks: A Comprehensive Guide to Buying a Short Sale Home

In the world of real estate, the term ‘short sale’ often sends a thrill of excitement through potential buyers. It’s the promise of a great deal, a bargain too good to pass up. But is it really as rosy as it seems?

While short sales can indeed be a golden opportunity, they’re also fraught with potential pitfalls. They’re not for the faint-hearted or the unprepared. This article will delve into the risks associated with buying a short sale home, equipping you with the knowledge you need to navigate this complex terrain.

So, if you’re considering a short sale purchase, stick around. It’s time to uncover the truth behind the allure, and understand if it’s the right path for you.

Risks of Buying a Short Sale Home

Definition of a Short Sale

A ‘short sale’ refers to a scenario where a homeowner sells their property for a price less than the amount they owe on the mortgage. The term ‘short’ describes the gap between the home’s selling price and the remaining mortgage obligation. Lenders agree to these transactions to avoid the lengthy and costly process of foreclosure.

Circumstances Leading to a Short Sale

Common Instances leading to a short sale include economic hardship, declining property values, or an unexpected life event like job loss or medical emergencies. In these situations, homeowners find it difficult to keep up with their mortgage payments. Opting for a short sale can save them from foreclosure, although it’s complemented by numerous risks for the buyers.


However, buyers may face the risks of buying a short sale home, and it is important to understand what these risks are. For instance, short sale properties often require significant repairs; lenders typically sell ‘as-is,’ meaning they won’t pay for any home improvements. Paperwork for short sales can also be particularly complex, leading to long wait times, while approval for these sales is not guaranteed. Plus, there may be additional loans or liens on the property that buyers will have to navigate. It’s therefore critical to evaluate these risks before deciding on a short sale home.

Risks Involved in Buying a Short Sale Home

Following the examination of the short sale concept, it’s essential to explore the risks of buying a short sale home more in-depth. As potential buyers, one must weigh these risks carefully to avoid unforeseen disappointments and financial setbacks.

Unpredictability and Uncertainty of Short Sales

Diving into the pool of short sales, buyers encounter the murky waters of unpredictability and uncertainty. Banks often hold the power to approve or disapprove the sale, adding an extra layer of unpredictability to the process. This uncertain nature extends to timelines, as well. Buyers may wait months for a response from the bank. By then, they may lose out on other opportunities in a fast-moving real estate market. For example, a buyer interested in a short sale property in a desirable location like Manhattan may miss out on an alternate property in the same area because they’re waiting on a bank’s decision.

Potential for Increased Costs

Moving onto financial matters, the sweet initial price tag of a short sale home often disguises increased costs down the line. While savings on the initial sale price may look inviting, there can be additional costs in the form of unpaid taxes, unpaid homeowner association dues, and liens against the property.


For instance, a short sale home in Chicago priced at $200,000 might seem like a steal until buyers discover $15,000 in unpaid real estate taxes. Additionally, potential buyers might face extra expenses for legal advice or hiring a specialized real estate agent to navigate through the complexity of short sales.

Issues with the Home’s Condition

Issues with the property’s condition also dominate the list of risks when buying a short sale home. Buyers frequently acquire these properties “as-is,” which could translate to significant repair and rehab costs. From a sagging porch in an aged Victorian home in San Francisco to a leaking basement in an older bungalow in Toronto, the potential repairs are often wide-ranging and unpredictable. Thus, hiring a professional home inspector becomes a critical step in the buying process. This service, while another cost, may save thousands of dollars by uncovering hidden issues before the purchase.