What is a Short Sale?
A short sale becomes possible when the remaining money to be paid on a mortgage is greater than the market value of the house. The short sale is an alternative to staying in a home the owner no longer desires or one on which he or she can no longer make the mortgage payments.
To make the short sale happen, the owner needs to find a potential buyer willing to purchase the home at its market price. The owner must then arrive at an agreement with the mortgage lender in which the lender consents to let the house be sold at that price and to release the lien on it.
Tips for Buying a Short Sale Home
It’s important to understand that the process of buying a short sale house is complicated and fraught with pitfalls. For example, the lender may reject an offer even after the seller accepts it. There are, however, things you can do to make the short sale house process go smoothly and conclude successfully.
Check public records before making an offer. If you know who holds the title, whether the home is actually in foreclosure, and how much is left to be paid on the mortgage, that will help you decide how much to offer.
Make sure your agent has short sale experience. Only such an agent can cover all the bases, prevent unpleasant surprises, and ensure your interests are properly represented.
Make sure the seller and the home qualify for a short sale. Generally speaking, a lender won’t agree to a short sale unless the seller has no equity and no ability to repay the difference between the sales price and the existing loans. Demonstrating this to the lender’s satisfaction requires a hardship letter among other documentation.
If the sale is on track, the lender will need to see a copy of the buyer’s earnest money deposit and proof of funds. The lender will also want a preapproval letter dated within the last 30 days to show that you will in fact be able to get your loan. It can also be helpful if your agent submits a list of sales of comparable properties that establishes the price you’re offering in in line with the others.
Give the lender a reasonable time to respond. Lenders generally respond within 2 weeks to 3 months. After the time you establish runs out, you’re free to cancel the short sale offer and look elsewhere.
If the short sale required a buyer’s broker’s agreement with your agent, you might have to pay a short sale commission out of pocket. It’s a good idea to ask your agent to waive this. If the agent won’t waive it, you at least need to know the expense is coming and how much it will be.
Generally speaking, a short sale house is sold “as is.” That means the seller isn’t making any repairs. Nonetheless, you should insist on the right to a home inspection. You need to know what you’re buying.
What are the Benefits of a Short Sale?
The complexities of the short sale process may seem off-putting. But a properly managed short sale can offer advantages to all the parties involved.
The buyer can obtain a home that suits him or her nicely at a discounted price.
The seller escapes a financial burden that has become insupportable and makes a clean start. There’s substantially less damage to the seller’s credit, and the short sale process is less unpleasant than foreclosure. The seller can remain in the home while the process is underway and is spare the indignity of bank personnel making inspections, a foreclosure sign in the front yard, and perhaps ultimately the Sheriff to showing up to carry out an eviction.
From the lender’s point of view, short sale approval provides loss mitigation, meaning the lender reduces future loss by avoiding foreclosure, the necessity of making repairs before the home can be resold, covering holding costs, and ultimately very possibly having to suffer the expense of reselling for less money than a short sale would have provided.
Whatever side of the transaction they’re on, all parties benefit from the involvement of an experienced short sale negotiation company.
Sellers benefit when the company encourages lenders to move quickly enough to prevent foreclosure.
Buyers obtain a quick negotiation and closing as well as a good price.
And realtors benefit because someone else, someone expert, is handling all the tedious communication with banks. The realtor is thus free to focus on listing and selling properties.