Short Sale Homes For Buyers and Sellers
What is a short sale home, and how does it affect both the buyer and the seller.
Short Sale Homes for Buyers and Sellers
In times when the real estate market is in decline, ‘Short Sale’ listings start to appear on the market. While many people have heard the term, how many people actually know what it means, and know the implications involved in buying one.
A ‘Short Sale’ is where the home being sold is listed for less than the amount that the buyer owes the lender or lenders. Thus, the seller is actually asking the bank / lender to forgo some of loan. This situation is common in real estate markets where home prices are decreasing.
For example, if a home was bought for $200,000 and real estate prices declined by 30%, then the home would now be worth $140,000. Assuming the home had a 100% mortgage, the home would now be described as having negative equity, i.e. the home is worth less than the loan amount. If the homeowner wanted to sell, they would have to take a loss, and unless they could come up with the money, this loss would have to be passed onto the lender(s). This is a classic Short Sale situation.
If you are a buyer, there are some things you should know before you place on offer for a short sale. While short sales may offer great value for money, buying one can be a long and stressful process. When you make an offer, you have to sign an addendum identifying the fact that the property is a short sale, and that any offer is subject to approval by the lender(s). If the buyer accepts your offer, the offer is sent to the lender for approval. This approval process can take several months. The lender will want to get as much as possible for the property, so it is in their best interest to wait and see if any other offers materialize. After they have performed their due-diligence the lender will respond to the offers (it is common for the lender to receive multiple offers on a short sale property), by accepting, countering or rejecting them. This means you could have placed an offer which was accepted by the seller, waited several months for the lender to respond, only to find the lender rejects your offer. The other key point you should know about short sales is that they are nearly always sold ‘as is’. So do not expect the lender to fix problems found by a home inspection