So what exactly is a short sale and why might it be a good deal for buyers and sellers? A home owner may owe more than their home is worth because values have dropped dramatically and/or they have an adjustable rate mortgage that resets at a higher rate causing their monthly mortgage to substantially increase. Rather than allow their home to be foreclosed upon, they can request permission from their bank to sell the home for less than is owed. This saves the bank from having a foreclosed property on the books as red ink and incurring the associated expenses. The home owner’s credit report will show that their mortgage was “satisfied as agreed” rather than as a foreclosure. A short sale will sell for less than is owed on the home but generally for more than a foreclosure that has been lingering on the market and not being maintained.
This year I have been the listing agent on a couple of short sales. Unlike some agents, I am not running a short sale assembly line. When I list a short sale I market it, stage it, print brochures, hold open houses…in other words I treat it like every other listing. Short sale listings are not the ugly step sister of real estate…at least not in my book. But they have gotten a really bad rap and a lot of real estate agents and buyers are turned off by the prospect of writing a contract on a short sale. Although a buyer can expect to pay below market value for a home listed as a short sale they are also known to take up to six months to settle if they ever settle at all. I have heard so many stories of buyers waiting months and months only to either give up and move on or have the bank not approve their offer. Generally it is assumed that the bank or banks are the sole culprit in the long drawn out process of getting a short sale approved and to settlement. That’s not necessarily the case. An agent who does not understand short sale bank procedures and who doesn’t follow up and keep meticulous records can also slow the process down and cause the sale to die. It’s important that the listing agent on a short sale have experience in this type of sale and the selling agent should at least be familiar with the process. Here are some good guidelines for anyone pursuing a short sale to review.
Unfortunately many banks don’t have the staffing to handle all of the short sale requests that they receive nor do they have the systems in place for the process to run smoothly. The sales contract package that banks require in order to process and evaluate a short sale is daunting. The required documentation can total seventy-five plus pages. If even one document is missing the contract won’t get processed and the bank is unlikely to call the agent to let them know. In most banks the short sale staffing is inadequate and employees don’t have time to follow up on missing and incorrect documentation. So the onus is on the agent to make regular follow up calls without being annoying.
The primary benefit for a purchaser is that they will get a below market value home usually in much better shape than a foreclosure. Short sale sellers are usually still living in their homes and maintaining them. Their homes aren’t likely to be trashed or have extensive repairs that need to be made. So a short sale purchaser can invest the savings on the sale price in upgrades that improve energy efficiency by purchasing new low-e windows, a new EnergyStar rated heating and air conditioning system or adding good insulation for example.
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