Today we see four different types of home sale transactions:
- Private owner sales.
- Bank sales. (Foreclosures)
- Short sales.
- Private owner sales that are unlisted. (For-Sale-By-Owner or FSBO)
- Of those four the most difficult by far is the short sale.
Short sales are a relatively recent type of real estate transaction. They were almost unheard of prior to the property market meltdown in 2006. Now they make up a significant portion of the homes for sale in many cities, and there are industry predictions that suggest they will be a large share of the market for at least another five years.
Short Sale Defined
A short sale is real estate transaction in which a homeowner’s lender agrees to the sale of a house with a payoff of less than the amount due on the mortgage. (The lender agrees to take a “short” payoff.) The seller typically needs this help because the home is worth substantially less than the payoff of the mortgage. The challenge is getting the lender to agree to this. If lenders make this process easy, they would have a lot more of their borrowers trying to do them.
On the other hand, if a lender doesn’t agree to a short sale, the buyer may walk away from the home and the lender would be left with a foreclosure, in which they must spend thousands of dollars to manage the vacant property and go through court proceedings, and typically lose thousands of more dollars
Problems With Short Sales
There are literally dozens of things that can go wrong in a short sale. So many in fact, that our member buying experts put together a report for home buyers on short sales. If you are a short sale buyer you really need to sit down and read the full report. You can download the report free here: https://.naeba.org/wp-content/uploads/2012/06/20120621NAEBAShortSaleReport.pdf
Buying a Short Sale
Buying a short sale can be a profitable experience. Our members have helped thousands of buyers achieve very good purchases with short sales, however, they are typically very time consuming and frustrating. You need to go into the process with the right attitude.
Short Sale vs Foreclosure
Some buyers confuse short sales with foreclosure sales. They both involve banks on the selling side, but otherwise, they are very different. A foreclosure is much more like a typical private party sale except that it is a bank who is selling the home. A short sale is a private party sale where the home owner’s lender is being asked to accept a payoff on the homeowner’s loan that is substantially less than the remaining balance. As a result, the seller of the home will often agree to any reasonable offer, however that sale is contingent on the seller’s lender agreeing to be shorted on their payoff. Lenders don’t like to agree to short sales so your purchase offer typically starts a long process of bank reviews and renegotiations. Again, as a buyer, you should read and understand the NAEBA report on short sales you can download here: https://naeba.org/wp-content/uploads/2012/06/20120621NAEBAShortSaleReport.pdf
- Don’t even consider a short sale if you have a specific time frame within which you need to buy. Short sales are totally unpredictable.
- Don’t fall in love with a home that is a short sale. The chance of failure on any given short sale transaction is just too high.
- Most importantly, find a buyer agent who will represent you and guide you through the process without the obvious conflicts of interest regular real estate agents have. Find an Exclusive Buyer Agent in your area.