In real estate, a lot of terminology gets thrown around that can make property buying and selling seem complicated. A popular term that gets mentioned a lot is short sale real estate. When you first hear short sale, it almost seems as if the term means a speedy selling or buying process. Despite how it sounds, a short sale has nothing to do with time. In fact, the term has everything to do with the seller. Let’s break down what a short sale is, and what you need to know about them for your next real estate transaction.
What is a Short Sale?
When a realtor sends you information on a short sale home or property, it’s usually a situation in which one of two things are happening. They’re not great things, either; why else would they be taking less money than they owe on their mortgage?
In some cases, the homeowner accepting a short sale on their property ended up losing value in their home from the time they took out the mortgage. Home values can rise and fall for a number of reasons, but in many cases, a short sale can be the outcome of a home purchase that ended up falling flat in terms of investment. This is almost always a case of the housing market dipping in an unforeseen way, but it can also occur with risky property purchases that a buyer hopes will improve, but don’t.
Another instance that can qualify a home for a short sale is if the owner is behind on mortgage payments. The mortgage lender might be prepared to take a loss on the property if they can at least get a majority of their investment back. For example, if $200,000 is owed on a mortgage and payments are becoming a problem, it’s likely they’d be happy with a $150,000 sale as opposed to a foreclosure. Many wonder if a foreclosure is a type of short sale, so let’s discuss that for a moment.
Is Short Sale the Same as Foreclosure?
A foreclosure is not the same as a short sale. The main difference is which part initiates the sale. In a foreclosure, the lender is taking ownership of the home in response to delinquent payments. They then sell the house to try and make some money back on their failed investment. In a short sale, the homeowner is the one selling the property. This is an important difference, because a lender must accept a short sale and its terms. For example, if you have a $200,000 mortgage and short sell your home for $125,000, the lender can deny the sale. Despite both the buyer and seller agreeing, the lender can still review the deal and deny the sale.
In most cases, everyone wants to avoid a foreclosure. The legal costs of the process are burdensome on the lender and the homeowner, so in most cases, lenders will look to approve a fair short sale. Of course, there are some things to look out for when buying a short sale property.
Considerations When Buying Short Sale Property
When you’re considering buying a short sale property, there are a few things you and your real estate agent will want to look out for. First things first, look into how much money is owed on the home. While they may have the home listed at a certain price, they might be willing to take less. Without looking into this information, which is a public record mind you, you might end up making a less appealing offer than is available.
Likewise, keep in mind that you’re not really negotiating with the seller. Of course, they’ll be the ones to accept or decline your offer initially, but even if they take an offer from you, it’s really up to the lender. The seller of the home and their real estate agent are both like representatives of the lender, who has likely told them what they’d approve. Plus, even if they say they might consider one offer, they get final say in the end.
Keep in Mind Home Conditions
Another important thing to think about when buying a short sale property is the condition in which the house currently is. This is important for two reasons. For starters, there may be concerns about the home’s condition, which is why any real estate agent would recommend a home inspection. It’s tempting to skip this step and speed up the purchasing process, but you need to know what condition the home is in to make an educated offer.
That’s because many homeowners selling their home in a short sale likely don’t have the money to add in any end-of-sale extras. It’s safe to say you shouldn’t count on closing cost deals or required repairs before sale from short sale property owners.
Don’t Jump on Short Sale Properties Too Early
If you find out a property is going to be offered as a short sale, don’t assume you’re getting a great deal. The listing price of a short sale home might still be near the value of the home. Depending on the situation of the homeowners, as well as the desires of the lender, they might be willing to go lower if the sale doesn’t take place in a timely matter. That’s where a great real estate agent can come in handy, helping to find that perfect offer that gets you a great deal as well as an approval from the homeowner’s lender.
Short sale real estate is a tricky thing to maneuver, but in a lot of ways, it’s better for all involved than the alternatives. For the homeowner and lender, they can avoid foreclosure. For the buyers, there are some great deals to be made!
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Whether you're looking to sell your home with an agent or need to quickly offload a home due to probate, preforeclosure, tax liens, needing repairs, or you just need a quick cash offer, I'm here to help. As an experienced real estate professional with Fresh Start Property Solutions, I offer flexible options to meet your needs. I can list your home on the market for top-dollar or get you a fast cash offer. It's your decision, you decide, I make it happen. Reach out to me today to discuss how we can get your home sold fast or for the highest possible price.
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