Basically, a “short sale” is when a seller owes more money to their lender than the property will now sell for. Short sales are not new to the industry but were not prevalent in the market until now. We hear more of short sales now due to the real estate market values taking such a downward turn due to economic conditions. Most sellers do not have the cash available to them to cover the loss, so the lender is asked to take a lower amount to pay off their existing loan to sell the property. Upon an offer to the seller, the lender must give their approval and acceptance of a lower pay-off amount.
A short sale is different than a foreclosed property. A ‘short sale’ transaction is one which the property is still owned by the individual, but needs their banks approval to sell. A foreclosed property is one which the bank now owns. The process and concerns of buyers are quite different between these two.
The biggest concern for a buyer in a ‘short sale’ transaction is the length of time it takes for the seller’s bank to approve acceptance of the lower pay-off amount. Some short sales have gone through in a timely manner and others have taken several months to get approved. The approval time is affected by several factors such as the cooperation and availability of the seller, the lender’s guidelines, the knowledge and cooperation of agents involved, the amount of loss to the lender, existing second liens, if any foreclosure processes have begun, etc. If you are a buyer with no time frame in which to move and can wait, if need be, then the short sale property may be for you.
The second most concern for a buyer is that some lenders are not willing to pay outstanding utility bills such as water and sewer and in order to clear title someone has to pay them. Most times if the seller is in a “short-sale” situation, they may not have the funds to pay them and it would fall onto the buyer to absorb these costs if they want the property.
There are a lot of great properties on the market with a “short sale” status and it is in the best interest of the buyer to rely on your real estate agent’s knowledge and expertise to help in your decision to purchase the property and guide you through the sale.