A “short sale” is simply a real estate transaction wherein the lender is “shorted” what is owed to them. When does a lender agree to a loan payoff when they are not receiving the full amount back that is due to them? Only when they authorize it!
Many properties currently listed for sale will have the term “short sale” in the explanation paragraph. This means that the current homeowner is in the process of obtaining approval from their lender to basically “forgive” a portion of the debt that is owed. The GOOD news for buyers here is that they can now purchase homes for tens of thousands of dollars less than homes generally sold for a few years ago. This is GOOD for investors who were simply priced out of real estate as an investment a few years ago. And it’s GOOD for a seller/homeowner if they can get the bank to agree because it might free them from debt they can never hope to repay. But this is BAD for banks, and is one large reason why the economy is currently so sluggish.
Short sales and foreclosures are BAD DEBT. The banks need to get rid of these so they can improve the return on investment for those who invest in mortgage backed securities. Lots of money markets, individual investors, insurance companies, retirement funds, and others, invest in this type of security.
A buyer interested in purchasing a home that is a Short Sale needs to have a lot of patience. Here’s how it works: Your real estate agent writes an offer for you to purchase the home you have chosen. That offer is first signed by the current owners (once both buyer and seller reach an agreement of terms). But this is just the beginning. It is not a sure sale until you have written approval from the holder of the loan on that property. This approval process is lengthy and can be complicated. While you are waiting for the sellers lender to approve your offer, other offers from other real estate agents can still be written and accepted by the seller, and forwarded to the lender for approval. Until the LENDER accepts the offer, you are basically in limbo. Best to keep looking for a home while you are waiting for approval on your first offer. Each state will vary as to the rules of writing secondary offers by you on other properties. Leave those details to your local real estate agent.
Once you have Short Sale approval from the lender, you often are given a very short period of time to inspect the property, obtain pest and dry rot reports, generally make certain that you are completely satisfied with the home AND close the transaction. Sometimes this time period can be as short as 2 weeks. Best to have your financing lined up, an appraiser ready to appraise the home for your own financing and inspectors ready to act within days. The reason you might want to hold off on the inspections is that you don’t want to spend your hard earned cash on inspections unless you are sure the sellers lender has approved YOUR specific offer.
Buying a home is a complicated process, and these complications are multiplied when you are attempting to buy a “short sale” and you are given so little time to perform. But don’t be faint hearted! A good real estate agent can calmly walk you through this maze and the result for you can be a home for your family at an amazing price!!
Foreclosures are much easier to understand. The seller “lost” the home to the bank who foreclosed on the property because the seller quit making monthly payments on the loan.
With a foreclosed property, the bank now has complete ownership. The GOOD news here is that we only need lender approval on an offer. That means that the response time is much shorter. The BAD news is that the offer is usually reviewed by an unemotional committee who oversees these transactions and they are not very interested in “negotiating” back and forth with the buyer. They will also usually NOT perform any inspections or agree to pay for any repairs. The buyer is purchasing the home without warranties of any kind. When the sale closes, the bank doesn’t want to ever hear from the purchaser again. So it’s in the buyers court to COMPLETELY determine if this home is suitable in every way. Again, a great real estate agent can provide lists and help with all of the things you might want to consider about any property you are considering.
The very GOOD news about foreclosures is that the pricing on these properties, from the day they are listed, is usually rock bottom. Depending on the particular market in which you live, these homes sometimes get multiple offers. So be prepared to jump when your agent calls and says “let’s go look!”
Hopefully this has helped to clarify these rather unfamiliar categories in the real estate market. Depend on your real estate agent to answer even more questions you may have….or better yet, email me anytime! I’m glad to help in any way I can!
Joanie 805-674-1968 or joaniewilliams@remax.net www.joaniewilliams.com