Like a foreclosure a short sale is another buzzword that many people think will help them get a good deal. Can you a get a discount on a property by buying a short sale? Yes. However like any real estate discounts there are reasons why they are discounted.
First, Let’s Understand What A Short Sale Is.
When a homeowner owes more money on their mortgage than a house is worth but they need to sell it they may need to do what is called a short sale.
Many people purchased houses during the height of the market. So now that prices have come down some of them owe more on their mortgage than a house is worth.
Here’s a simplified example:
Let’s say a homeowner bought a house in 2005 and now owes $300,000 on their mortgage. They want to sell their house but it is now only worth $250,000. They have 2 choices The first is they can sell the house for $250,000 and then pay $50,000 out of pocket at closing to pay the mortgage off. The second option is to do a short sale. They sell the house for $250,000 and the bank agrees to forgive the remaining $50,000 that is owed to them.
Here’s What Makes This Complicated:
As I mentioned, the above is a very simplified version of what happens because typically the homeowner is also behind on their payments. That means they may also owe back taxes, possibly water bills, sewer bills and all sorts of bank fees. So the amount due can actually be quite large. And on top of that they may have multiple mortgages on the property.
The sellers receive no money in a short sale. Sometimes the bank will provide some assistance to help them move.
The owner may still live there but the house is typically not cared for. Because the seller is not going to receive any money for the property they don’t usually keep up with the upkeep. They have no incentive to.
We don’t know how long a short sale could take. It could be a few months or longer.
Short sales can be very frustrating because of the amount of paperwork involved and it has to be kept updated. Every 30-90 days you’ll have to resubmit certain paperwork to keep it moving along.
How Is A Short Sale Different From A Foreclosure?
A foreclosure property is no longer owned by the home owner. It is now owned by the bank and vacant with no utilities turned on. You can read more about buying a foreclosure here.
A short sale is still owned by the home owner BUT they need to get the bank’s permission to do a short sale. This means that they will need to submit significant amounts of paperwork. It can be very time consuming. When you submit an offer the seller will approve it and then send it to the bank. The bank then needs to approve the price.