What is a short sale? Let's break it down. Say you're selling your home; however, the offer you get is so low, it won't cover the total amount you owe your lender on your mortgage balance. But you need to unload it, so you'll take it. This is a short sale—simply put, you end up “short” on paying back your lender, and your lender agrees to accept less than what's owed on the loan.
Often homeowners are pushed into a short sale by personal financial troubles that make it impossible to pay their monthly mortgage to their lender. At the same time, they find it hard to sell at a price that would enable them to pay off their entire loan—especially if local real estate market trends have driven down their home's market value.
Short sales can be bargains for home buyers, but prepare to jump through many more short-sale-buying hoops than you'd find in a foreclosure or even a typical home sale. “I wouldn't recommend short sales for first-time buyers, who may get frustrated with the extra paperwork and long waits,” says Waterhouse. “A traditional sale takes 30 to 45 days to close after the offer is accepted. A short sale typically takes 90 to 120 days, or even longer.”
The reason for these holdups is that the mortgage lenders—which are stuck paying for closing costs that a seller would typically cover—will often counter with their own demands in an effort to raise their bottom line. So, short-sale buyers might hear, “We'll accept your offer, but you're responsible for all repairs, wire transfers, and notary fees.”
Our advice: Go ahead and negotiate, or walk away if you aren't satisfied with the terms of the deal. Ultimately it's up to you to decide whether it's worth it to absorb these extra costs. When in doubt, ask us to help you crunch the short-sale-buying numbers.
While foreclosures can be bargains, buyers should know that they come with a lot more risk than a short sale. For one, keep in mind that a foreclosure home is sold at a courthouse, sight unseen. So, there's no time for a buyer to inspect the house for structural problems; you also inherit all liens tied to a foreclosure. In this sense, a short sale might be a safer transaction.
Bottom line: When a short sale is done right, sellers, buyers, and the lender can all walk away happy.
Please contact us with any questions at RealEstate@LandLhome.com
Source: Excerpts from Realtor Magazine by Judy Dutton