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What is a short sale?
Are you interested in buying a house? Short sale can be the right option for you, but there are quite a few hidden steps you might not be aware of. It's not as complicated as you expect and, although not as straightforward as foreclosure, it can lead to an excellent deal.
So the question is what is a short sale? In the real estate world, a short sale is when the owner of a property sells it for less than what is still left to be paid off their mortgage. If the homeowner still has $200,000 to be paid in mortgage but sells their property for $150,000, they will be "short" $50,000 on paying the bank. This is where the name comes from.
A short sale usually happens when the owner is going through financial distress, falling behind on their payments in an unrecoverable way. They don't own any other assets that can be used to settle for their debt.
Is a short sale like foreclosure?
In a way, a short sale is similar to a foreclosure. The owner is in financial distress the same way and falling behind on mortgage payments, but the main difference is that in a short sale, the owner still chooses the deals they will take with the buyer and is still the first person you would need to negotiate with.
The transaction process is very different from foreclosure. Foreclosure is not a choice made by the homeowner of a property, it is a decision made by the bank, and the lender leads the whole process. Buying a foreclosed property is negotiating and buying directly from a bank or institution. At the same time, in a short sale, you go through the extra step of arranging the details first with the owner and, secondly, waiting on the bank's approval.
Who benefits from a short-sale, and how long does it take?
A short-sale is not fit for everybody, as you might have guessed. Firstly, it takes longer than buying a foreclosed property. The whole process usually takes from 2 to 6 months, as it depends on the bank's approval. If your time and choices are flexible, this might be a good option for you.
The flexibility of choice comes into play because the final word in the deal comes from the bank. The bank needs to evaluate if the deal will be profitable since they will be losing money over the initial amount lent to the homeowner. Of course, this can be a quick decision, depending on the property's circumstances. Still, it's crucial to keep aware that the best buyer of a short sale should be open to negotiations and making counteroffers.
The main steps:
- Offer is accepted – Once an offer is made, the homeowner will evaluate and accept it. That's when the homeowner will propose the offer to the bank.
- Bank approval: The bank will need to review the documents and usually negotiate the price. After a price is settled, the bank will send an approval letter.
- Sale approved – After the bank approval, the sale continues as a regular sale, and the deal has been made.