Foreclosure rates are at an all-time high—and as a result, more sellers are looking to short sales as a way to avoid the impacts of foreclosures. Short sales can have both pros and cons for buyers and sellers. Here’s how it works and how to make the most of it.
What Is a Short Sale?
Short sales are now quite common in parts of the country where significant drops in home values have made it difficult to sell a home. In a short sale situation, a homeowner who is facing mortgage foreclosure agrees with his or her bank to sell the property for less than the value of the remaining mortgage amount. The buyer’s money goes to pay off the majority of the mortgage, the bank forgives the remaining balance, and the seller avoids foreclosure.
Short Sale Pros
· For buyers, the deal is the key.
· You can get an excellent property at prices typically below market value--but it takes a discerning eye to tell the diamond in the rough from the lemon.
· The buyer typically gets more property than he pays for, the bank recoups the majority of the mortgage amount, and the seller walks away with nothing.
Short Sale Cons
Short sales aren’t all positive. The red tape can be positively entangling before buyer, lender, and seller all agree on a package deal. Short sale difficulties include these:
- Not all lenders will agree to a short sale—and if they do, their stipulations may not match either the buyer’s or seller’s needs.
- Not all sellers qualify for short sale proceedings. As a buyer, make sure the current homeowner has followed proper proceedings to be eligible for a short sell. In most cases, a home must be in default before a bank will consider a short sale.
- Buyers get a deal, but they will also most likely get a fixer-upper. Short sale homes are more of a gamble and may need more work to be safe and livable properties. If you are considering a short sale to rent or to live in yourself, get an inspection and factor in all the work you’ll need to do yourself before signing.
For a buyer that is willing to take on the lengthy process of a short sale, and doesn’t mind a potential “fixer-upper” and a seller that wants out, short sales can be a great opportunity to obtain.