A short sale is an alternative to foreclosure. In a short sale, a bank will allow a homeowner to sell the home to a new buyer for less than what is owed on the current loan balance. However, short sales are not an easy or straightforward transaction. Home buyers must endure a lot of red tape in regards to the purchase process. Prior to offering to purchase a short sale property, it is wise for a home buyer to know what to expect and what the different terminology means in each stage of a short sale.
Short sales are viable foreclosure alternatives. They help the current home owner by not forcing them to carry a foreclosure on their credit for the next 10 years. They help the home buyer because a home buyer can purchase a home for a substantial discount. It also helps the neighborhood to protect it from having a surplus of vacant, foreclosed properties that will negatively affect property values.
Short sales are done in stages. The current home owner must apply for a short sale approval by providing their lender with a budget, a hardship letter and information on the sale of the property. The home owner must also provide the lender with a market analysis performed by a licensed real estate agent or appraiser in order to determine value and the likelihood of achieving a sale.
Short sales are broken down to in three stages: application, preliminary approval and final approval. The application process can take 30 to 60 days for a home owner to receive a preliminary approval from a lender that they are eligible to take part in a short sale. The final approval is not rendered until after a home has an accepted offer from the lender and is near to its closing date for the new buyer.
Once a home that is approved for short sale has been placed on the market, it is the job of the selling agent to provide the lender with all offers presented for the property. In many cases, agents will receive multiple offers on the property, for above the price advertised. The bank will review each offer and accept the one that makes the most financial sense to them. In other words, the highest and best offer.
Most lenders will take 30 to 45 days to review all offers presented on a short sale property. Buyers presenting offers for short sale, need to be very patient during this period, as it could take a long time to hear back from the lender about the status of their offer. Once the bank has narrowed an offer down to the highest and best amount, the buyer will be contacted, and the home moved into preliminary approval status, pending closing.
Short sale properties can, at their core, seem to be a good deal. However, most short sale properties in high-demand areas are sold for well above the listed price. Because of this, savvy buyers need to be educated and guided on presenting an offer for a short sale. They need to be advised that, in order to call the property their own, they need to offer more than the advertised price and not ask for additional discounts or concessions.
Many buyers believe that short sales are similar in the makeup of their transaction as would be a typical real estate sale. Short sales are a very different process and require many parties to work together, from the agents to the lender, in order to facilitate a transaction. Because of this, some short sale transactions can drag out for as long as three months. When committing to a short sale, be certain you know what to expect and what you are getting into.