What is a Short Sale?
A short sale is a very common thing in the Real Estate market, and we’d like to take a moment to break down exactly what happens during the Short Sale process. The first thing to know about Short Sales, is there’s usually nothing “short” about them. In a short sale, the owner of the property owes the bank more than the house is worth on the open market. When a seller decides to short sale their home, they should not plan on making a profit, for that is prohibited.
When a seller decides to short sale their home to avoid foreclosure, their first step is to contact a Real Estate Professional and sign a listing agreement. When a buyer and seller come to an agreement, the contract is submitted to the bank for approval. The bank then has to decide if they will take a short pay off of the loan. For instance, say you owe $400,000 on your home and the market determines it would only sell for $350,000; the bank then has to decide if they will accept the new offer of $350,000.
This is the lengthy part of the transaction. The process that the bank goes through to decide if they will take the short pay off of the loan takes anywhere from 1 -4 months. During that time, the short sale negotiator is in talks with the bank, negotiating, fine tuning, delegating fees, preparing contracts, etc. Often times, the buyer will not get any updates from the bank until the bank makes their final decision and submits a short sale approval letter.
The short sale approval letter will contain all the information the buyer needs including sales price, closes of escrow date, and breakdown of fees. The transaction then continues on like any other transaction with the buyer doing their inspections and reviewing all related documents and disclosures.
All in all, a short sale is sometimes an opportunity to get a good deal but only if you are not in a time crunch. If you are behind on your payments or upside down on your mortgage, your best option is to do a short sale. Doing a short sale hurts your credit a lot less than letting your home go into foreclosure.