Lots of people have questions about short sales. What is it? How does it work? Is it good for me as a buyer? Is it good for me as a seller? None of the answers are easy, but let’s try to sort out some facts.
What is a short sale? A short sale situation exists when a homeowner owes more on his property than it’s value. For example, a homeowner purchased a home in 2005 for $350,000 and wants to sell it now. If the current mortgage amount is $275,000 but the house is only worth $250,000, the seller is “underwater” or upside-down.” A short sale occurs when the lender agrees to accept less than is owed on a mortgage.
How does it work? When a homeowner realizes he is in a short-sale situation, he should take immediate action and contact the lender to request a short sale (or short pay) package. The lender will require a number of documents to substantiate that accepting a short pay-off on the mortgage is appropriate. A competent real estate agent with specialized training in short sale transactions can help guide you through the process.
Is it good for me as a buyer? That question is a little complicated. Whether or not a short sale is good for you as a buyer depends on many factors. Short sale transactions often take longer than other types of transactions, so if you need to move on a specific deadline, it may not be the best bet for you. If you have a flexible schedule in arranging your move, a short sale can be good. You will likely be able to purchase a property at a reasonable price and feel good for helping out a distressed homeowner.
Is it good for me as a seller? Generally, yes. The advantages to sellers are many. In the first place, you can feel good about doing your best to make a bad situation better. Lenders understand that things happen — jobs are lost, catastrophic illness, or any number of other legitimate issues. For the most part they are willing to work with homeowners who are suffering from a hardship.
The downside? The process will feel invasive and embarrassing. The lenders are going to exercise every legal method at their disposal to make sure that the homeowner is deserving of help. At the end of the process you should understand that your credit rating will be adversely affected, but not nearly to the extent that it would in the event of a foreclosure. And, finally, won’t you fell better knowing that you did your very best to live up to the obligations you incurred?
Get more information. The best thing you can do whether you are interested in buying or selling a home that is a short sale is get more information. It’s important to work with a real estate agent who understands the short sale process. One good choice when interviewing an agent is to ask if he or she has any special training in short sale transactions or holds any certifications. There are many certifications available, such as the SFR® (Short Sale & Foreclosure Resource) available through the Natianal Association of REALTORS®.