The best way to illustrate a short sale is to start out with an example:
Assume a homeowner has an unpaid mortgage loan balance of $200,000, but the property will only sell for $175,000. The lender holding the mortgage agrees to sell the house for the $175,000 amount which, of course, leaves the lender “short” the full amount of $200,000.
These situations are often related to “hardships” such as:
- Permanent injuries
- Financial insolvency
- Job layoffs
- and more…
While this is a sad situation for the homeowner, it does offer an opportunity for the buyer to grab up a bargain. However, there are several potential downsides that the buyer should be aware of before he/she makes an offer.
- Short Sales take a long time
Once an offer is accepted by the seller, the offer is sent to the lender for approval. This process can take anywhere from 2-12 months.
- The lender does not have to accept the Short Sale
Often, lenders will counter the offer or just refuse it outright. There is no way to know beforehand if the lender will accept the offer. This can often be mitigated by ensuring the buyer is pre-qualified and offers close to market value.
- The seller must be committed
A great deal of paperwork and information is required from the seller in order to complete a short sale. If all of this paperwork is not completed, the lender may reject the deal. Additionally, there have been cases where the seller declares bankruptcy at the last minute in order to back out of the process. Make sure the seller is 100% committed before moving forward with the purchases.
If you are interested in purchasing a short sale… the best thing you can do is contact an experienced real estate agent. There are many myths and misconceptions surrounding short sales. That is why it is important to choose your real estate agent carefully. This type of real estate transaction is far too complicated to trust to an agent who lacks short sale experience. At DLP Realty, ⅓ of all of our real estate transactions are short sales. Together with our short sale negotiation affiliate, Illumination Real Estate Solutions, we have a 94% success rate!