Browse through current real estate listings, and you’ll come across some homes marked as “short sales.” Don’t be put off by this description, but be prepared for the difference between a short sale and a normal home sale.
A short sale occurs when a home is being sold for less than the amount owed on the mortgage. This process is initiated by the owner of the home, as opposed to a foreclosure, which is started by the lender who holds the mortgage.
In a short sale, the lender must agree to accept less for the house than it is owed, and this process can take a lot of time and paperwork. The lender will require documentation from the owner to prove that a short sale is necessary. The terms of the sale must be approved by the lender, which is different than a normal home sale where the only party that has to agree to the terms is the seller.
A short sale allows a bank to avoid the costly and time-consuming process of foreclosure. The seller benefits from a short sale because they take less of a hit on their credit. Asking for a short sale is a proactive move on the seller’s part, and they will see less of an impact on their credit report because of that.
As a buyer, you need to know a few things about a short sale. First, there’s nothing short about a short sale. The process can take months, even a year, to complete. Be patient, and don’t stop looking at other houses.
Also know that you’re buying the house as is. Neither the lender nor the seller will be willing (or able) to make any repairs to the home. Once you’re in the house, be prepared to spend time and money cleaning and doing repairs. You’ll also have little to no negotiating power on the price of the home. The lender wants to get as much as possible out of the home. You can also expect to pay closing costs since the seller likely can’t afford to do so, and the lender will not want to do so.
There’s a huge benefit for buyers, in spite of all the reasons for caution: When you buy a short sale, you’re getting a home at a bargain price. You’re paying way less than you would have had you bought a similar home in a traditional sale. This may let you get more house for your budget, provided you’re patient and are willing to spend a little time fixing up the home.
