Foreclosures and Short Sales Explained
What is a Short Sale?
There is much confusion
over the meaning of the term “short sale”. Whether you’re
considering buying or selling real estate, it is an important
subject. When I research our market in South Florida for a market
analysis for a seller or when I search the MLS listings for a buyer, often there are short sales in the search results.
There are many
misconceptions about what the term “short sale” means. Many people think that a
short sale is any sale that is priced below what the Seller paid or below what
is owed to the bank. While both of those conditions are often true, they are
not what determine a short sale as defined by those of us in the real estate
Short Sale: Definition
A true short sale occurs
when a Lender agrees to accept a price less than what is owed on a mortgage.
The Seller is still the person that bought the property from the Lender, but
they don’t have the financial resources to close the sale without the Lender’s
cooperation. The Lender must be willing to accept a loss.
A short sale
must close before the Lender forecloses on the property. Foreclosure proceedings are often moving forward while a short sale transaction is in process.
Sellers are required
by the Lender to prove financial hardship and inability to meet their mortgage
Short Sale Information
Why would a Seller want
a Short Sale vs. a Foreclosure?
It is a sad fact that
the majority of people going into foreclosure have just given up, and they
never realized that they may have a much better option. If the homeowner is
assisted by a team who understands the short sale process, there is a strong
chance that foreclosure can be avoided.
Many homeowners don’t think they can
afford to sell. This is a tragic assumption, because most Realtors only charge
a commission if a sale is made, and the Lender pays the commission!
A foreclosure is much
more damaging to a person’s credit rating than a short sale. A short sale is a
settled account, where a foreclosure is a default.
Many job applications and
security clearances are challenged by a foreclosure. Foreclosures remain on a
credit history for at least 7 to 10 years. A Seller can bring their
credit rating back up from a short sale in 2 to 3 years or less.
Short sales are much
more work for the Realtors involved, as well as the title company handling the
transaction. I cannot emphasize enough how important it is for the Seller to be
supported by right team.
From my viewpoint, it is well worth the extra work,
knowing that my assistance can help make such a huge difference for the financial outlook of my client, the Seller.
If you're wondering if a
short sale may be the best option for you, I welcome you to contact me for a confidential consultation.
Short Sale, Foreclosure,
and Distressed Property Information for Buyers
Which is easier for a
Buyer: Short Sale, Foreclosure, or Motivated Conventional Sellers?
There is no way around
it, short sales are less certain and more likely to take longer than other
sales. Long delays in responses from the Lender are common, for initial offers
and subsequent negotiation. Many Buyers and Realtors prefer to stay
away from short sales for this reason.
Any Buyer considering a short sale
should expect delays in the negotiation and often delayed closing, along with a lot
of extra paperwork. It is possible to work on a short sale for months, and even then, the transaction could fall through. In my personal experience, short sales have taken anywhere from one month to one year to close.
This is not to say that a Buyer should turn these listings
away, as long as they have plenty of time and patience. Investors often can afford to wait it out. If you need to be closed and moved into your personal residence by a certain date in the near future, you should probably not take the risk.
typically more straightforward than short sales, because the Buyer is dealing
directly with the Seller, who is usually the Lender, the Asset Manager or the Loan Servicer.
There is inevitably more
paperwork with a foreclosure than with a conventional sale, but usually not as much as in a short
sale. There are often delays in response time, but again, rarely as long as in
a short sale.
Lenders are not in the business of owning property, and do not
want to carry the expenses any longer than necessary. They will
often price their inventory, known as REO (Real Estate Owned), at prices that
are lower than comparable properties on the market. In a seller's market, there are often multiple offers on those properties. The seller will then usually ask buyers for their "highest and best" offer.
Sellers are owners who feel they have to sell, and have enough equity or
personal capital to sell their property at an aggressive price.
Of course, many
Sellers who are hoping for a short sale are motivated, and so are Lenders, but
we’re talking about conventional sales here, where Lenders are not involved on
the Seller side.
Life events usually drive the motivation, including job
relocation, health issues, estate sales, and divorce. These Sellers usually
respond quickly, the sales normally require standard contracts, and closings
can occur in a normal timeline. There can be delays if multiple family members, attorneys and accountants all are involved in the negotiation process.
offered full price for a short sale, and the offer was refused! How can this
Answer: All short sales are
subject to the approval of the Lender, who may not approve the amount they will
receive even if a Buyer offers the full asking price in the listing.
Sellers are motivated to sell before the Lender forecloses, they reduce their
asking price until the property gets shown and hopefully, offers come in.
Realtors who are knowledgeable in the short sale process offer very valuable
assistance in the pricing strategy that will be acceptable to the Lender and
that will bring potential Buyers in the least time.
will seek short sale properties for their Buyers that have already had an
offer refused, so they can find out what amount was acceptable to the Lender
if the Lender made a counteroffer.
I'm Here to Help!
If you're seeking
assistance with selling your property short, or as a buyer with finding and negotiating a great deal on a short sale,
foreclosure, or other distressed property, I welcome you to contact me for a free consultation.
Copyright© 2015 by Scott
A. Field. All rights reserved. No reproduction is permitted without the
author’s express permission.
Selling your home shouldn't be a stressful ordeal. Making the
smart move of choosing a REALTOR® is your first step to ensuring that your
investment in your home pays off. Our services and experience allow you to
focus on your move while We manage your home sale from our initial consultation
to the closing deal, and beyond. We pride ourselves on repeat business and hope
you'll come to understand why.