What is a “Short Sale”?

Perhaps you have a question you’re curious about; maybe you are too embarrassed to ask: What is a short sale?

Simply stated, a so-called “Short Sale” is: When the owner of a house (or any real property) owes more than the actual market value.

Since there are more foreclosures on the market today and continues to grow exponentially, the mortgage holders, in many cases, will agree to accept a lesser amount as a total payoff.

The cost to a lender to foreclose on a property can amount to as much as $40,000 to $50,000 after it is all said and done. Lenders realize they will be better off accepting a lesser amount, rather than to pursue the expensive foreclosure process. They know they will not recoup their cost to foreclose. The cost of insurance, taxes, homeowner’s fees, and possible vandalism after foreclosure is prohibitive.

The short sale has become a necessary evil for the lenders. It has also become a great opportunity for buyers to purchase at a deep discount.

The downside of the short sale is the time it takes to get the short sale process completed. It can take up to three months or more just to get an answer regarding your offer.

When the lender receives your offer, it starts a series of negotiations, which may produce a counter-offer rather than the acceptance of the original offer. Negotiations can last a relatively long time depending on financing considerations of the offer, pre-approval and additional conditions and concessions asked on your offer.

Make sure you understand that short sales have no determined time limit and your lender’s interest rates may change substantially before you get an acceptable figure for the purchase. Only after a solid dollar figure has been agreed to by the mortgage company and the proposed buyer, can your lender start the underwriting process. Therefore, you should consider that additional time in your closing time projection.

Remember when you enter into a “Short Sale” purchase attempt, the listing price may not be sufficient to pay the total of all liens and the cost of sale. The sale of the property at full listing price will require the approval of a third party which is, in most cases, the mortgage holder of record or their servicing agent. Therefore, listing price may be an approximation of the amount that the lender may or may not settle for.

A “low-ball” purchase offer, or a lower dollar amount is probably not realistic and could possibly even become counter productive in your endeavor.

A short sale may be beneficial for you to consider. However, not if your purchase schedule is limited and your time constrains won’t allow for the time it takes to get your offer accepted.   In some ways, you may find it turns out to be a waste of time for yourself and your Realtor®.