Many misconceptions and myths are spread around about shortsales, which is why some homeowners are afraid to consider this option and some buyers are afraid to consider purchasing them. Both sellers and buyers need to be aware of some of the common myths and the real truth behind them when considering this transaction. Here is a look at some of the top misconceptions about these transactions.
Short Sale Myth #1 – Buyers Overpay for Shortsales
In many cases, listing agents have been known to price a short sale property below market value, working to bring in more offers on the home. However, listing real estate prices may not be a good guide to follow, since buyers never know what the bank will accept until an offer is accepted in most cases. Keep in mind that banks will usually consider a price that is 90% of the current market value of the home. Unreasonable offers will be rejected. In most cases, the truth is that buyers usually end up getting the home at or below market value, which provides homebuyers with an excellent deal on the home.
Short Sale Myth #2 – Short Sales Can Take a Year or More to Close
In many cases, short sale transactions can take longer to close than other real estate transactions. However, the idea that it takes more than a year to close is a big myth, especially now that banks are becoming more motivated to go through with short sales. The amount of time it actually takes to close on these properties depends on whether the lender has approved the home for a short sale or not. Homes that are already approved for this type of a sale can close in less than 30 days. If the homes are not currently approved can take quite a bit longer.
Short Sale Myth #3 – Sellers Must Be in Default Before They Can Be Approved for Shortsales
This is not the case. Lenders approve these transactions based upon the home’s value and the hardship of the seller. In some cases, sellers may be having difficulty paying their loans without having fallen behind on those mortgage payments at the time. Sellers in default often are given immediate attention, but sellers that are still paying on time may be able to qualify for a short sale. For homeowners that feel they cannot keep up with mortgage payments in the future, this may be a better option than going into default and harming one’s credit even further.
Short Sale Myth #4 – A Severely Discounted Payoff Will not Be Accepted By the Lender
Some sellers are afraid that their lender won’t accept a severely discounted payoff. However, home values have fallen so significantly that homes may only be worth half of what they were when the home was purchased. Lenders do understand the decline of the real estate market and keep this in mind when considering shortsales. Banks take the time to research the value of the property, basing the home’s value on comparable sales instead of on the mortgage amount.
Short Sale Myth #5 – Banks Would Rather Go with a Foreclosure
Another common misconception about short sale properties is that banks would rather go through with a foreclosure on the property instead of approving the shortsale. In reality, banks are realizing that foreclosures can make them lose even more money, since these proceedings are quite costly. Lenders usually find that they receive more of their money back when going through with a short sale.
Of course, lenders will require that certain qualifications be met before approving these transactions. However, these transactions are becoming even more popular and trends show that shortsales will probably begin outnumbering foreclosures in 2013 as banks realize that short sales make a better loss mitigation technique.