What is a short sale?
You may see what is referred to as a “Short Sale”, what this means is, the current owners of the property are probably in default on their mortgage and the property is soon to be foreclosed upon by the bank or lending institution. In these cases, the owners are trying to get out of the property without a foreclosure on their credit, but usually they have more money owed on the property than the value of the property at this time. You can still make whatever offer you deem reasonable, however the offer will ultimately need to be approved by the bank or lending institution (3rd party). Sometimes, because of the 3rd party approval, short sales can take a longer time (a few weeks) before you may receive a response on whether or not an offer is accepted. This verbiage often denotes a short sale.
“LISTING PRICE MAY NOT BE SUFFICIENT TO COVER ALL ENCUMBRANCES, CLOSING COSTS, OR OTHER SELLER CHARGES AND SALE OF PROPERTY AT FULL LISTING PRICE MAY BE CONDITION UPON APPROVAL OF THE THIRD PARTIES, CALL FOR DETAILS.”
Why buy a short sale?
If you have time to wait, there are benefits to purchasing a property prior to foreclosure. You can still receive some great deals on great homes with a short sale. Since the owners own the home, you may have an opportunity to learn more about the property than if it were bank-owned because the bank has never lived there. If the home is still occupied it is often better maintained than once it’s vacant and the bank owns it. Also, you may be helping out a family who really needs it. You may be able to ask the owner some questions like:
- How much are the average heating/electricity bills?
- What are the neighbors like?
- Have you made any improvements? Do you have any warranties?
What are risks to purchasing a short sale?
There are some risks to purchasing a short sale
- If your offer is lower than market value, there is a good chance the lender will reject the offer. Lenders are trying to keep their losses to a minimum.
- Even after your offer is submitted, a seller may keep their property on the market and submit better offers to the lender.
- You will probably have to take the property “as is” with no repairs
Is a short sale really short?
No. The only thing “short” about a short sale is the amount of money the lender will be receiving compared to what is actually owed. Often these sales can take months before they close.
What is the difference between Short Sales and Foreclosures?
- Seller still owns property
- Title is in seller’s name
- Distressed Sale
- Mortgage is usually already in default (behind on payments)
- Seller tries to sell to save their credit from a Foreclosure
- 3rd Party Approval Required from Lender
- Oftentimes More Money is Owed to Lender(s) than House will Sell for
- May have outstanding liens
- Approval can take several weeks
- Bank-owned Property
- Foreclosure process is already completed
- any existing liens have been cleared through the foreclosure
- Bank is the Seller
- No 3rd party approval needed