So What Exactly is a Short Sale?
This is a question I am frequently asked when showing houses to buyers. Many people have heard about short sales and foreclosures and think they are a great way to get a great deal on a house. While this can be true, there can be some disadvantages as well. Below I will explain the three main types of sales and the advantages and disadvantages of each one.
- Standard Sales – A standard sale is between a person selling and a person buying. This is typically the simplest type of sale. The seller wants to sell and the buyer wants to buy, so both parties typically are willing to work with each other to reach the end goal of a closed transaction. The biggest advantage to this type of sale is that repairs can typically be negotiated. Certain loan types will require a property meet certain standards. Having a seller who will work with you to get the house to meet the loan’s criteria is a big help. This disadvantage to this type of sale is that some sellers will not be cooperative and can at times, feel that their home is worth more than it really is.
- Short Sales – A short sale is between a person selling and a person buying, but the bank is in the middle. In a short sale, the seller typically owes more on the property than it’s market value. This means that in order to sell it, someone is going to lose money. In this case, the bank is the one losing. The offer is made to the seller and once they accept, it goes to the bank for approval. This can be a lengthy process. It could take weeks or even months to get bank approval. Despite the seller accepting the offer, the bank could determine that the price or terms are not acceptable and require more. A short sale could take months and even sometimes as long as a year to get to settlement. The advantage is that it could be possible to get a good deal on a nice house. The disadvantage is that the properties are usually sold “as-is” meaning that the seller is not going to make any repairs. As I explained above, this could be a problem if the property doesn’t meet the loan’s criteria. The other disadvantage is the lack of control over the timeline for settlement. A short sale can be difficult for a lot of buyers because they are trying to coordinate their purchase with the sale of an existing home or the end of a lease. The uncertainty can be very frustrating and discouraging. Short sales are best suited for buyers who are not in a rush to get into a new home or for investors.
- Foreclosure – A foreclosure is between a bank and a person buying. With these sales, the bank has foreclosed on the property and taken possession of it. These types of sales tend to be simpler than a short sale. Banks are concerned about getting these properties sold quickly but at a fair price. They are typically sold “as-is.” Most foreclosures were neglected prior to their previous owners leaving and they likely have been sitting vacant for quite awhile. This means that the chance of them being in disrepair is quite high. While there are exceptions, getting these properties to pass the criteria for certain financing types can be challenging. The advantage to buying a foreclosure is you can get a property for a relatively low price. These properties typically can settle quickly. There isn’t the wait and uncertainty of a short sale. The disadvantage is the condition of most foreclosed properties.
When you are thinking about buying, an experienced Realtor can help you determine which type or types of sales would be best suited for you. It’s also important for you as a buyer to make sure that your Realtor understands what type of financing you are using so that we can make sure the properties you’re looking at will pass the criteria for your financing type.
If you have any questions call one of our experienced and knowledgeable agents today!