With 13% of Americans moving each year, you might be gearing up to put your house on the market or make a purchase. But if you’ve faced declining home prices or financial issues, you may need more help. Whether you’re a buyer or seller, a short sale is one option to pursue.
Are you wondering, “What is a short sale in real estate?” Keep reading to find out!
Evaluate the Seller’s Financial Situation
If you’ve fallen behind on mortgage payments due to financial hardship, a short sale is a viable option. Or perhaps a recession or other event has caused your home’s value to go downhill. When you’re in a bad market, too, you might be desperate to sell your home for the best amount possible.
In situations where mortgage payments are unsustainable, a homeowner can pursue a short sale. This means that they’ll pay an amount that is under what they owe, and the lender forgives what remains.
On the other side of the equation, a buyer can get a good deal on a home. A short sale buyer needs to take the normal steps to get ready. They should get approved by a lender, which will make them more attractive to the seller’s lender.
The buyer will want to do a thorough inspection of the home, too, to be aware of future financial burdens. And they might end up paying more in closing costs if the seller’s lender wants to make up the cost.
Sellers Need to Consult with Their Lender
When selling your house, you can’t simply choose to do a short sale. You’ll need to sway your lender to agree to one first. And this means presenting documentation of financial hardship that is truthful and recent.
For example, you may have encountered a health problem that’s left you with large bills that cut into your mortgage budget. Or maybe you lost your job. If you haven’t had problems making mortgage payments yet, though, you might have an uphill battle convincing the lender.
Certain activities can signal a red flag for a lender, however. If you start buying cars or other big-ticket items, they might not buy your story of needing to make a short sale. And if you have a co-signer on your mortgage, that person may be targeted for making payments if you’re unable to.
Understand How a Short Sale Differs from Foreclosure
Homeowners may turn to either a short sale or foreclosure when they hit financial challenges. In both cases, the owner is unable to pay what the property is worth.
While a real estate short sale and foreclosure might seem similar, there’s at least one big difference. In a foreclosure, the property owner is being forced into the process of giving up the home. With a short sale, however, the homeowner is taking action to sell their property, but at a loss.
With a short sale, you’ll engage in a process that can take months. Don’t expect the process to move more quickly than a traditional sale! That’s because you’ll need the approval of your lender, even if you have an eager buyer.
In either case, a short sale or foreclosure won’t be a positive event for anyone’s credit score. With a foreclosure, a property is auctioned off. In a short sale, the seller will take a hit — but their credit score will recover more quickly, enabling a new purchase sooner.
Consider Options Besides a Short Sale
A short sale remains a logical choice when you need to unload a property with minimal financial damage. There are other options, though.
For instance, if you’re in a seller’s market, you may be able to move quickly with a traditional sale. A seller’s market means that the options are low, so your home might get more offers. Price it lower to gain multiple bids.
While short sales can take a while, there are ways to unload your home for cash more quickly. You can work with local or national companies that will buy your home regardless of its condition. Follow this link to learn more!
Buyers Need to Be Alert and Patient
A good agent can alert you to a real estate short sale. While these sales may be listed with other traditional options, they can be harder to find. You may even want to request access to short-sale properties before they hit the normal listings.
Look for an agent who specializes in homes that might be good investment properties. This means that these are homes that need significant work, but may be located in good areas.
You can try renting space in your home, such as a spare bedroom. This can provide additional income to pay the mortgage. You also may be able to look into refinancing your loan to improve your monthly payments.
While you can negotiate short sales, be aware that this extends the process. Remember that every move has to be approved by the seller’s lender. You’ll need to bring your negotiation skills to the table!
What Is a Short Sale in Real Estate?
You might still be asking, “What is a short sale in real estate?” The answer is that a short sale is a way for a financially distressed homeowner to sell their home.
The process can take a while, but a seller won’t be trapped with delinquent payments. Buyers will need to be savvy to find short sale homes, which can be a good deal. For more real estate tips, check back soon for new articles!