With the number of short sales steadily increasing in many housing markets over the past few years, chances are high that you'll encounter this type of sale in your home search. Short sales are now common in many markets.
Or, you may be one of the many homeowners considering the short sale option for your home.
While at one time short sales were viewed as too complex and burdensome to deal with from a buyer's perspective, this isn't necessarily the case today.
With the help of an educated and experienced real estate agent, a short sale is not only manageable, but can result in a great deal on the home of your dreams. And for a seller who's facing foreclosure, a short sale can be the best outcome in a bad situation.
This material here covers the basics. But if you're going down this route as a buyer or seller, it's absolutely critical to work with an agent who understands short sales.
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A short sale is a real estate transaction in which the bank or lender agrees to let the homeowners sell their home for less than their loan balance. In some cases, the sellers don't need to pay back the difference between what they owe and the proceeds of the sale.
Recent changes in the industry have streamlined the short sale process, making this sort of transaction a popular alternative for both buyers and sellers. Additionally, banks are much more interested in facilitating short sales and avoiding foreclosures that result in placing the properties back on their books.
In many cases, short sales present a proverbial "win-win" situation. Here's how:
If you're serious about saving money with a short sale property, it’s best to work with an agent who knows how to execute short sales. RE/MAX agents lead the industry in short sale transactions because many have that training and experience.
Say you owe $200,000 on your home and can no longer make the mortgage payments. One option is to refinance your home and secure a lower payment based on a longer term or better interest rates. But if your property has lost value due to local market conditions (say it would sell for only $150,000), refinancing isn't feasible. If the bank agrees to a sale at $150,000, it's called a short sale.
Although short sales have become more common in recent years, banks don't always grant them. In general, they approve short sales in these situations:
However, different banks and lenders have different requirements. So sellers should discuss the short sale option with their lender.
Short sales can present a great deal for buyers. But the process is a bit more complicated than a normal home purchase, and it will take patience and help from an experienced agent.
Short sales often look like other listings in the MLS, except they may have a lower asking price than comparable properties.
The term "short sale" is a bit of a misnomer, though, as this type of transaction can take much longer to complete than a standard home sale.
The buying process is similar to a standard purchase. You still apply for financing the same way, and order inspections the same way, for instance. But complications in the selling process aren't uncommon, and you'll need patience and a solid real estate agent to deal with them.
The good news, though, is that times have changed. Many banks have streamlined their processes for short sales, making it much simpler and less time consuming for buyers and sellers. Market data shows that the time it takes to close a short sale has steadily decreased over the past few years.
For many reasons, choosing a real estate agent who has experience with short sales makes a tremendous difference. An experienced agent may already have the right contacts within the lender's local office, and most likely has already helped buyers through the process.
Possible short sale hurdles an agent can help you navigate:
Working with an agent who understands the short sale process saves you stress and time spent dealing with obstacles that often come up along the way.
Using an agent is important in any real estate transaction, and even more so in a short sale. A skilled agent will be able to prepare for obstacles and move through them as quickly as possible.
When choosing an agent, it's important to:
It's equally important to be comfortable with your agent.
Ultimately, your agent can mean the difference between a successful short sale and a huge, frustrating disappointment.
The Short Sale Buyer's Checklist
Have plenty of patience, but balance it with persistence. Keep in mind that banks have grown much better at processing short sales, which is good news for you.
A short sale often presents a good option for homeowners who are in danger of foreclosure or in default because of documented financial hardship.
The benefits of a short sale include:
Because your credit history won't take as long to recover with a short sale as it would with a foreclosure – an average of two years versus seven years – the short sale option is great for sellers who want to own a home again in the near future.
Some banks have launched programs to prequalify homeowners for short sales. Through their records and housing data, they identify borrowers on their books who are in negative-equity situations. In this case, some are reaching out to borrowers in an attempt to further streamline the short sale process.
This makes it much easier for you, the seller, to proceed with a short sale.
Short sales require different paperwork than a normal home sale. In some instances, as mentioned above, your bank may have already qualified you for a short sale. In other cases, you and your agent will need to submit certain paperwork to your lender.
Your lender then decides whether or not to approve your request for a short sale.
Just what goes in a short sale package? Each lender is different, but in general, you will need:
Keep in mind that banks' processes vary, and the above list is a general representation of what many will want to see.
Finding an experienced real estate agent to guide you through your short sale is extremely important. When interviewing potential agents, ask about experience specific to the short sale process in your area.
In the past, the notoriously long waiting game for short sales deterred many buyers from attempting them.
But times have changed. Many banks have streamlined the process and removed the barriers that have hamstrung short sales in the past. Some are even prequalifying borrowers to get the ball rolling faster.
In addition, federal guidelines have helped shorten the wait for mortgages owned by Fannie Mae and Freddie Mac. These are great changes for buyers and sellers, because it means there are regulations in place to help shorten the process.
A short sale may be a great option for you. The key is to find an experienced agent who can help you pursue the purchase or sale with confidence.