When the real estate market hit the bottom, the number of short sales reached record highs. Due to the high volume of distressed sellers banks were faced with, and the lack of experience/preparedness, the odds of a short sale making it to the closing table were slim. And if it did make it to closing, it was a several months (and sometimes years) long process.
The short sale environment has certainly changed and is much more streamlined now. There are systems, processes, and third party programs to facilitate a smooth transaction. For a buyer looking for a “deal,” a short sale may be a great fit.
What exactly is a short sale?
A short sale has nothing to do with the time frame in which the home can close. A short sale simply means that the seller is “short” on what they owe versus what they can sell the property for. A short sale is a home being sold for below what the seller currently owes on the property, and the seller has some sort of hardship that prevents them from being able to make up the difference in funds at closing.
Is a short sale the same as a foreclosure?
No. A foreclosure is owned by a lender. A foreclosed property is one in which the seller’s lender or lien holder has taken title of the home due to the seller defaulting. The lender/lien holder is then selling the home directly. A short sale is still owned by the seller, not the bank. Oftentimes, a seller will try to short sale to avoid foreclosure.
What’s the risk?
- Lengthy approval time and risk of rejection. Even if a seller and buyer come to agreement, the seller’s lender has to approve the contract and terms. If there is more than one mortgage, then both lenders must approve the contract and terms. This process can take 2-4 months. (Or even longer, if the lender chooses to counter terms in the contract). Interest rates may rise in that time frame, affecting your purchasing power. And if the short sale does not get approved, you may have missed out on other great properties while waiting for the approval.
- Changed contract terms. Even if a lender approves a short sale, it could require that the sellers sign a promissory note to repay some or all of the deficient loan. For some cash-strapped sellers, this may not be possible. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
- Buying “as–is”. You will most likely be asked to take the property “as is” with a right to inspect. Lenders are already taking a loss on the property and may not agree to requests for repair credits. Lenders don’t typically allow sellers to make repairs either.
If time and patience are on your side, a short sale may just be the right fit for you.
For more information on short sales or to view short sale properties that may work for you, contact me today. Blair@BlairSells.com.