What is a Short Sale?
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.
A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. While credit is also typically damaged much less than from a foreclosure, both often result in a negative credit report against the property owner.
Should I Buy a Short Sale Property?
If you are considering buying a short sale property, there are several things you should know. There is a notion that you can get a great deal on the price which may be true. However a short sales requires a tremendous amount of patience from all parties involved in the transaction. If you must close or occupy the property by certain date don’t buy a short sale. A seller can accept your offer, but their lender must approve the sales price. Lender approval requires having the property appraised, and or a BPO ordered to determine the fair market value. The Seller must submit a hardship letter and financial documentation to be considered for a short sale. The entire process may take up to a minimum 120 days. However in some case depending on how many lien holders there are it can take much longer. It’s important to know not all short sales are equal. Not setting the proper expectations when entering into a purchase contract only leads frustration.
What Does The Buyers’ Agent Need to Know?
When representing a short sale buyer, a Realtor must be patient but diligent. Providing the listing agent with all the needed information at the time of the offer is essential. Be sure to include the pre-approval from the buyers’ lender or proof of funds if it’s a cash offer. Any missing information or documentation from the short sale package, my add days or weeks to the transaction’s timeline.
Some agents worry that in a short sale they would not receive their full commission from the bank. This is not typically the case. However some investors place a cap on the amount they will pay to the Realtor, but most are now paying the commission reflected on the contract.
In some cases there may be a rock bottom net proceed the bank will accept in order to approve the transaction. If the commissions, tax proration, title fees, transfer taxes, and any other fees add up to more than the amount that the bank will approve, the Realtor commissions may be reduced in order to ensure the transaction closes.
Find an Experienced Team
Whether you are selling a home as a short sale, or you are considering buying a short sale property, I highly recommend surrounding yourself with an experienced team. A real estate agent and attorney who have short-sale experience will not only make the entire transaction easier, but it will also increase your chances of receiving the bank(s) approval and closing the sale.