Understanding Short Sales
By Keith Loria
No matter where you turn these days, short sales are still a hot topic. However, if you’re in the process of looking for a new place to call home, the term ‘short sale’ shouldn’t scare you off. In today’s market especially, pursuing a short sale can be a unique competitive advantage.
In its simplest definition, a short sale is when a home is sold for less than what is owed and the bank forgives the excess debt. Although this was once considered taboo by banks, with the housing climate that exists today, many lenders will gladly go this route rather than having the homeowner join the tens of thousands who have let their house fall into foreclosure.
A home that is listed as a short sale is more likely to be kept up, as the seller still wants to get as much money as they can and attract buyers to the home. But beware. If there are improvements that need to be made to the home, even if they are necessary to get a loan, it is often unlikely that they’ll get done.
According to Irvine-based data tracker RealtyTrac, in the first quarter of 2012, short sales grew 25 percent from a year earlier, hitting a three-year high in the process. In fact, short sales seem to be turning into the preferred method for many lenders. Owners unloaded 109,521 homes during the first three months of the year for less than what they owed on the mortgage.
Unlike in a foreclosure, the bank does not own the property in a short sale. However, because the bank must approve the sale, it will seem like the buyer is purchasing the property from the bank.
The entire short sale process hinges on the hope that the bank will approve the sale, take the loss and eliminate the costly process of foreclosing, clearing, and reselling a home.
A short sale can often take longer than a traditional sale because of the documentation required and the sign-off needed by the lender, so make sure to work with an agent who has experience in short sales and can help expedite your transaction and protect your interests.
By checking recent home sales in the area to get a better idea of which properties are selling, your agent can work with you to come up with an appropriate price that will more likely be approved by the bank.
Even though banks lose money when it comes to short sales, lenders almost always lose more when they foreclose on a property, making short sales a practical option in today’s market. With so much inventory on the market from foreclosures, it could take years before the bank sees any money.
One important thing to keep in mind is that with a short sale, there is no leniency with the closing escrow date and a buyer must close on time. Because of this, it is important to take care of all loan paperwork immediately after opening escrow.
For more information about short sales, contact Pete Burke 312-399-0831