A lot of people have been asking me this question lately – what the heck is a “Short Sale”?
It is a term tossed around a lot in today’s real estate market but no one bothered to share what it means to consumers. Many people think it must mean something similar to ‘shorting a stock’, and others think ‘short’ might mean fast or quick. Sorry but the truth is that you have to own the house to sell it, and there is nothing fast about a short sale.
A short sale is a situation has a couple pieces:
- the seller owes more money (on their loan) than the house is worth (they are ‘upside-down’ or ‘under water’)
- the house is put up for sale – often at or near market value – but less than the loan is for.
- the seller asks their lender to forgive the difference between what they owe and what the home can sell for.
- the bank reviews the owner’s financial info, gets an appraisal, and investigates the sale contract, to see if they will approve the sale and accept less money.
In most instances the bank takes weeks or months to review the contract and give approval (or deny it). If a buyer has the flexibility to wait for bank approval (and move in after that unknown date) then a short sale may be a good way to buy a home at a discount (a little below market values).
The upside for short sales compared to foreclosure properties is that in a short sale the owner WANTS to get rid of the home. They are trying to sell it and because of that the homes are usually in better condition.
The down side is that the bank doesn’t have to play. Many banks are considering ‘short sales’ and some are not. If all the paperwork they need is submitted, which can be different for each bank, it is a long and aggrivating process. There is no guarantee that the bank will approve the deal, if a better offer comes in on the property they can approve it instead, and the buyer’s money is tied up until the contract is resolved – so they are giving up on other oppertunities while they wait.