Real estate prices are down and buyers are looking for great deals. A short sales home is being positioned as a good solution for buyers, sellers and banks. But is short sale real estate the best way to get a bargain on a house or condo? Before searching for cheap real estate with short sales, it is important to understand how a short sale works and who stands to gain.
What is Short Sale Real Estate?
According to the National Association of Realtors, "A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, and the seller is unable or unwilling to bring sufficient liquid assets to closing to cover the deficiencies." In other words, the seller is "upside down," owing more money to the bank than the home is worth.
Should a Family Buy a Short Sale Home?
To avoid foreclosure and subsequent credit problems, sellers can enter their homes into a short sale. Sellers may choose a short sale over foreclosure because it is less damaging to their credit history and they are likely to be eligible sooner for a mortgage once their finances are stable.
A bank will benefit from a short sale because it will be paid back sooner than with a foreclosed home. However, if the homeowner took out multiple mortgages, then the banks might take longer to agree on distribution of the money.
Will the Buyer Save Money on Short Sale Real Estate?
"A short sale is never short and usually not a sale," says the National Association of Realtors. In addition, the banks will most likely reject an offer that is far below the fair market value of the property. “The servicer’s (realtor's) primary goal is to minimize the investor’s (bank's) loss on a property with a distressed borrower. Offers way below the fair market value just cloud the process.”
Purchasing a Short Sale House
Because sellers could have mortgages with more than one bank and additional liens on their properties, the settling process can take longer than a typical transaction, according to realtor Katie Arthur of Prudential NW Properties. Since banks are overloaded with processing paperwork on delinquent loans, Arthur suggests that buyers remain patient. "Because a short sale can be slow to close, it may not be a good option for a buyer who has to be out of his home by a certain date. Sometimes buyers even withdraw from an short sale offer because it takes so long."
While it is possible to get a great deal on a short sale house or condo, buyers need to keep in mind that the banks' top priority is to be repaid top dollar on their mortgages. If there is more than one bank involved with the property, then negotiations between the banks can take longer than a non-short sale transaction. Buyers should be aware of possible delays, and to search for the latest information about short sales before entering into an agreement.
Sources:
Dittman, M. Smooth Short Sales: Tips From a Lender: Realtor.org, May 15, 2008.
Carolyn Morgan - Carolyn Morgan is a Sales Promotions Specialist at a television station in Portland, Oregon and has produced talk shows, telethons, and ...
