Short Sale Advantages for Buyers and Sellers

Before I explain the advantages of a short sale for sellers and buyers, let me give you a simple explanation of what a short sale is.  A short sale is when a bank agrees to accept an amount less than the balance owed in repayment for the loan.  In the Valley of the Sun area, most sellers do not have enough equity in the property to sell the home at the current market value.  Thus, they are short on funds to close the escrow.  Unless the seller is going to bring funds from another source, they must appeal to the bank to accept less than what is owed on the property.  When a bank agrees to accept a lesser amount than the balance owed, the sale of the property is referred to as a “short sale”.  A seller must have bank approval in order to close the sale.

 

Seller Advantages:

1.  Short sales do not impact a seller’s credit rating as severely as a foreclosure.  Make no mistake, a short sale does negatively impact your credit rating.  However, a short sale is slightly less damaging.  The reason short sales are less damaging is that short sales are reported as a “settled debt” which is less severe than a foreclosure or a bankruptcy.

 

2. Short sales do not affect your credit for as long a period as a foreclosure or a bankruptcy.

 

3. As a seller, you are involved in the selling process.  This may give you a little more control over the agreed sales price, which may minimize further financial liability.

 

4. Depending on the type of loan you secured (and the state in which you live), there may be financial liabilities and/or tax consequences after a home has sold through the foreclosure process.  Realtors are not tax consultants

 

5. Listing a home under short sale terms can put someone in your corner.  Negotiating a short sale can be very difficult, frustrating and stressful for the homeowner.  This is especially true if payments are already in default.  Using the services of an experienced Realtor© may be helpful, as they will work as a mediator for you.  A Realtor© will help you with the detailed paperwork which must be submitted to the bank and will be able to handle most of the necessary phone calls, while at the same time keeping you informed of the negotiations.

 

Buyer Advantages

1. Homes sold under short sale terms are usually owner-occupied.  Normally, these homes are more likely to be maintained in better condition than a foreclosed home.  Not all sellers are behind in payments.  There are other considerations that may occur which has necessitated the need for the homeowner to sell.

 

2. A short sale may provide you with the opportunity to purchase the “perfect” home for you.  If you are looking for particular features in a home or a particular neighborhood, purchasing a home via the short sale process may provide you with a unique opportunity.

 

3. The bank may agree to sell the home for less than the current market value, which has already been depressed by the number of foreclosures on the market.

 

4. Buying a home via a short sale means that you (the buyer) receives all required property disclosures from the seller as required by law.  Homes sold through the foreclosure process do not offer this advantage.  A lender cannot be required to give the same disclosures as a seller because the lender has never occupied the property and therefore has no first-hand knowledge of property conditions, etc.

 

I must be honest with you and let you know that the disadvantage for both seller and buyer is the fact that it can prove to be a long process before the bank approves the sale.  As a buyer, you must be prepared to expect a long escrow.  Your escrow will most likely close beyond the agreed closing date.

 

In my next post, I will discuss the new plan presented by President Obama to help distressed homeowners.