What is a Short Sale?

     The terms “Short Sale” and “Foreclosure” get thrown around a lot in today’s real estate market. While these two could both potentially mean a great deal for a prospective buyer, they are very different from each other and if you still aren’t sure about how they work, this article is for you!

     A short sale is a type of property sale where the owners are upside down on their loan, meaning they owe more than what their property is worth and they are selling for less than what they paid for the property. This process can get tricky for both the buyer and the seller. The seller has to get approved for the short sale from their mortgagor (the bank or entity- sometimes more than one- who owns the loan), this most often means they have to prove some type of financial hardship which has rendered them unable to keep up with their mortgage payments. For the buyer, it can get complicated because even if the seller accepts the contract offer price, the sale can’t commence until the mortgagor(s) approves of the contract terms & value. This approval process can take up to 60 days or more, which is almost double the time for a “standard” sale and purchase.

     A foreclosure is the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments. This is usually what most homeowners are trying to avoid by going through with a Short Sale. Once a bank takes possession of the property, it may or may not make repairs before listing it with an agent to be active on the market. The buying process is not as long as a short sale but can still take longer than a traditional sale due to lender hours of operations and underwriting processes. This can still be a great deal for homebuyers looking to purchase property for less than fair market price.

     
     Something to remember with either situation is for buyers to take control of the factors that they have the ability to. Banks favor buyers who have their financing in order and are able to be flexible. Another factor to consider is if a property in need of repairs may not qualify for certain types of financing or may be difficult to obtain insurance. If a buyer is not paying cash, it is important to have all financing and pre-qualifications in order. It is also important to work with an experienced agent. An agent who has not handled a short sale may hurt a buyer’s chances of a successful closing. Look around for a seasoned agent, ask them questions like how many buyers they’ve represented in a short sale and, of those, how many have successfully closed. The right agent will be able help negotiate the purchase and maintain smooth communications with the lender.