What is a Short Sale?
A short sale is a way for money lenders to recover a portion of the funds from a borrower who is at risk of foreclosure. This helps the homeowner to get out of financial trouble and minimize losses.
With a short sale, the owner of the home agrees to sell at an attractive price to encourage interest from prospective buyers. The moneylender agrees to this price and either forgives any remaining money owed or pursues action to recover those funds.
For buyers, a short-sale home is a great way to purchase a property below market value.
What Buyers Should Know About Short Sales
When you’re in the market to buy a short-sale home, you have the opportunity to potentially buy a beautiful property for a great price. Typically, these homes are in better condition than foreclosed homes, which may have been vacant for a long time. From that standpoint, it makes the purchase less risky. But, there are a few considerations that buyers should be aware of when pursuing short-sale homes.
Short-sales take time – often months to close. If you’re looking to move in right away, a short-sale home may not be for you. And you are essentially buying the house in “as is” condition, so there can be issues with the property that can cost you valuable time and money.
You also need to prove you’re a good lending risk for the financial institutions involved if you’re not paying cash for the home. Buyers who can demonstrate stable cash flow and put a large down payment on the home may be the best candidates for short-sale homes. It is also helpful if you don’t have any contingencies.
What Short Sale Sellers Should Know
For sellers, a short sale is a way to get out of financial hot water while minimizing negative impacts. It helps you avoid foreclosure, which has a worse impact on your credit score. The majority, if not all, of your financial obligation to your lender is covered by the sale. Your money lender pays realtor fees, and you may even be able to negotiate forgiveness for any remaining debt. Plus, you can reenter the housing market more easily and may even be able to qualify for financing under the right circumstances.
But, a short sale isn’t without its drawbacks. When your home is up for short sale, you may not have much negotiating power. You also aren’t going to make any profit on the sale. Even though damage to your credit score is less than with foreclosure, there’s still a big impact that can affect your ability to obtain desirable financing terms in the future. If your financial institution is unwilling to forgive any debt remaining after the sale, you are on the hook for paying your moneylender those funds as well.
Realtor Impact
A realtor who is experienced with short sales can be a valuable ally for buyers and sellers. Short sales are complex transactions that ask a lot of a real estate agent. Sales take a great deal of time – two to four months or longer – and real estate agents play an essential role in facilitating the process.
But, it’s up to you to negotiate with moneylenders, and not your real estate agent. They can advise you, but their role isn’t to act as a legal representation on your behalf to make financial decisions.
Mattingly Ford Title
Our job is to make all real estate transactions accurate and official, and we want to make the process as hassle-free as possible. That’s why our clients trust us for fast, friendly, and accurate closing services at a fair price.
