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What is a short sale and how does it affect me?

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Short Sale

When you are searching for your new home, you will most likely come across some listings that are potential short sales. What does this mean and how will it affect you?


A short sale occurs when the owners owe more money on the house than what they can sell it for. They are working with their bank to offer the house for sale and the bank agrees to take less money than they are owed. The owner will need to prove that they are facing financial hardship in order to get approved to sell the house as a short sale.


Normally when you make an offer on a house, the owner is the only one who needs to approve the terms of the offer. In a short sale, the bank will also have to agree to the terms of the offer. The bank is going to take a loss for the difference between your offer and what they are owed. Based on the bank and their timeline, short sales can, and often do, move more slowly than a standard transaction. They will review the finances of the home owner and determine they are facing hardship, then they will review the offer and get approval from the investor for the loss. This process can take 90 days, 9 months, or longer. Short sales can get even more complicated when there is more than one bank involved, which can happen if there is a second mortgage on the home with an additional bank, for instance.


If you see a short sale price has been approved, that means the bank has already agreed to accept that price. This may have occurred because another buyer offered this price, it was approved, but the buyer didn’t end up buying the house. Offering the approved price on a short sale can mean a quicker transaction.


In addition to the length of time the process can take, the condition of the house may be another concern. The owner may or may not be living in the house. Depending on the situation that caused the short sale, the owner may be behind in typical home maintenance. Getting a home inspection will be important!


Why would anyone want to go through this process? You may be able to get a short sale house at a discount of market value. Remember that it is the home owner who owes more than the house is worth, and not that the house is worth less than market value. Even if the house is in perfect condition, buyers often expect to be compensated with a lower sales price for the time and extra effort to get the house. This rationale does not mean that a bank will agree and accept a lower offer.


Are you thinking about purchasing a short sale, you need a real estate agent who can help you understand the process and whether or not it is the right decision for you. Call me and let’s discuss what the process looks like in more detail.