This is quite possibly the most common question from both buyers and sellers in the real estate market today. So.. what is a short sale?
Contrary to popular belief, a short sale has nothing to do with the time frame in which the sale takes place. In fact, a short sale often times takes longer to process than a foreclosure or a traditional sale.
A short sale is when the seller owes their lender more than the home's current fair market value and the lender agrees to sell the home for short of what they owe.
For example, a seller owes $250,000 on their home. When their real estate agent completes a comparative market analysis, they determine that the fair market value of the home is only $200,000. In this case, the seller is "upside down" by $50,000. The seller then requests that the lender allows them to sell the home for fair market value, which is short of what they owe. This is a short sale.
It is very important that your real estate agent is fluent in the short sale lingo and writes the sales contract in such a manner that the lender forgives you for the remaining balance of your mortgage. The last thing you need when you're already in financial hardship is the lender coming back at you with a $50,000 bill to pay after the buyer gets a great deal on your house! A short sale can be a fantastic opportunity to relieve you and your family of a high mortgage payment that you can no longer afford due to being laid off, major medical expenses, military relocation, or simply just a rise in the cost of living with a lack of increase to your salary. The good news is, the banks have become very familiar with the short sale process and are moving more quickly to close the deal once an offer is received. As the seller, the most important thing to know is that you need to get that initial offer to the lender as soon as possible. Quite frankly, it doesn't really matter what the sale price is as long as you won't be stuck with a bill in the end, right? Take the advice of your real estate agent and get that offer to the bank. If you have more questions or you're ready to go ahead and list, give me a call or send me an email. We'll make it happen.
You should be aware that a short sale does have a negative impact on your credit. However, it is not nearly as bad as a foreclosure. There is still good news! Since banks have become more and more understanding of short sales and our society has become more and more accepting of them, it is not impossible to be ready to purchase another home just a few years down the road.
A short sale can mean several thousands of dollars discounted from the price of a home.. and even some instant equity depending on the deal. Most real estate agents are now pretty familiar the short sale process and what the bank expects to see. So don't necessarily expect the lender to accept an offer $20,000 below the list price, but, hey, anything is worth a shot right? A great majority of real estate agents price a home within a few thousand dollars of where the lender wants to be and the discount is usually already incorporated into the list price. However, there are some important things to understand when making an offer on a short sale home.
First and foremost, although the seller must sign off on the contract before it goes to the bank, the seller is not going to be negotiating the final offer; the lender is. Banks are in the business of owning loans that they can earn interest on. They are
in the business of owning houses. With that being said, they also will not just accept your offer. Just like the used car salesman, they will almost always send back a counter offer. There are instances, however, where a low ball offer is submitted and they flat out tell you no. Once the seller signs the contract and it becomes "ratified" (meaning that the home is now "under contract"). Once the contract is ratified, the contingencies must be met. Contingencies include third party approval (permission from the lender for the short sale), home inspection, wood destroying insect and moisture inspections, etc. The lender will assign a negotiator to review the file and an appraisal of the property will be completed. Once the negotiator received the appraisal results, they will begin negotiating your offer. I have seen short sales close in as little as 60 days, but they have also gone as long as 4 months. If you have more questions or you're ready to go ahead and list, give us a call or send an email. We look forward to working with you!
- Jeff Lurie, Barn Door Homes Team Leader/REALTOR®