What Is A Short Sale ?What is a short sale is a question asked by many. A short sale is really a form of pre-foreclosure sale and occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale results in a discounted purchase price for the buyer. The buyer would finance the acquisition much the same as in any conventional realty acquisition... but without the luxury of time.
A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers' mortgage obligations and closing costs. The seller is either unwilling, but usually unable to pay the difference. A seller may be in default on their mortgage and on their way to foreclosure, but not always. Not only do you want to know - what is a short sale, but why are they happening? One of the main reasons many sellers are in a bind is because they purchased during an up market, took out a large equity loan or did a re-finance on a value that was based on, what has turned out to be, an artificially high market. Sellers may end up going through a short sale for various reasons: -- Due to a job transfer -- A situational life change -- Bad decision making -- They are getting divorced
Regardless of the reason, they were not likely expecting to sell so soon. The end result is still the same.
Simply put, most of them now owe more on the home than it is worth and they have to sell it! Difficulty For A Short Sale Buyer Buyers believe that they can get a great deal on a home sold through a short sale and perhaps some can, but it's usually not easy. The hard part for the potential buyer is that a home owner who is losing their home is very emotional. When foreclosure is in the midst, people don't want to face reality.
If a seller has a good paying job, a retirement, and other assets, it is not likely that a lender is going to let them get away without signing a note to repay what they owe. This is yet another emotional upset. There may be more than one lender involved which makes it even more complicated. This would be a first mortgage and a junior or second mortgage. The junior lender will likely be the one to absorb most of the loss. So, the difficulty is that an emotional seller is hard to rationalize with for one thing. Then the lender or lenders must provide permission to sell at the price that is offered. Ideal Short Sale Situation The ideal seller for a short sale is still making loan payments and wants to preserve their credit rating. Without this, the process to buy may be too difficult to get through, unless, you are willing to pay off all of the debt and pay all of the closing costs. Realtors and Short Sales It wasn't that long ago that many Realtors were asking - what is a short sale? Many times Realtors find themselves in the middle of the short sale process as most sellers don't have the time and or knowledge to deal with it. In general, many short sale experts suggest pricing the property at or near fair market value. But most Realtors will start out by adding all of the debt and closing costs to come up with the listing price. How frequently the homes price will be reduced may depend on whether or not the home is in preforeclosre or not. Can You Expect To Get A Really Great Deal With A Short Sale? Banks typically have some sort of formula for the percentage under market value they will accept. I have heard that these figures are around 8 to 20 percent under market value. It is VERY important to understand that the bank will not give the property away, so to speak. In order to make a short sale work between the lender, the seller, and the buyer - is for the buyer or buyer's agent to show the lender hard facts that include but are not limited to comparable sales of other properties that support the buyers offer, offer to close within 30 days and to provide hard numbers - of the cost to continue the foreclosure vs closing now and cutting their loses now. A foreclosure may cost the lein holder up to fifty thousand dollars or more. It also can tie up the home for a year or more!
As a buyer, it is imperative to be prepared by qualifying for a mortgage.
What is a short sale questions are answered - Are Short Sales For You? It is almost certain that over the next couple of years we will see more short sales. - Reasons such as divorce and job transfers, etc. - many adjustable rate mortgages and interest only loans that are coming due for a change in terms, usually an increase. With that said many home owners will not be able to stay in their home.
If you, as a buyer do not mind a challenge, then you may want to research the world of short sales further. You may, however, be able to get a great deal on an already listed property of a motivated seller. The process will be much easier! As an Exclusive Buyer's Agent I can add to a positive buying experience by representing you and providing you with a buyer's rebate at closing. I hope my summary about "what is a short sale" has provided you with some insight.
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