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Wednesday, November 16, 2011

Don't Be Afraid to Buy a Short Sale

I've had a couple of customers show trepidation about making an offer on a "short sale".    So, I just thought I'd take a few lines to talk about short sales.

A short sale is when a buyer is trying to sell their property at a price LESS than what they OWE on the property.    The property is listed around market value determined by the current sales in the area.   When an offer is made, the seller (who still owns the property)  must agree to the price and terms of the of the offer.  Then the offer is submitted to the seller's bank.  Their bank must approve the price and terms as well since they are taking the loss!!    This process can take as long as several months.   However, the last one I did only took 30 days for approval!    The banks have finally come to the realization that they have to approve these short sales or foreclose.    Most banks really do not want to foreclose as it costs them more to take ownership and then they still have to sell it at a huge loss.

While the listing price of these short sales are negotiable the price offered must be in the "realm" of market value.   The first thing the seller's bank is going to do is order a "broker's price opinion" of the property giving it a value based on sales comps.  So, while buyers are still getting good deals on these aren't going to buy a house that is worth $300,000 in today's market for $150,000!!!
You might get it for $275,000 though!  

Once the offer is submitted to the bank, the bank will look at the financial situation of the seller to determine if they are going to approve the short sale.  The bank is the one to determine the final sales price....they can either accept the buyer's offer or counter back.    Once the final purchase price is determined then a closing date is set.    A buyer still has the right to do inspections on the house and, of course, a title search is completed to guarantee a clear title.  

The bank can approve the short sale waiving any deficiency judgement to the seller (the best scenario for the seller), they can ask the seller for a monetary contribution of a few thousand to tens of thousands, they can ask for a promissory note and set up a payment schedule for a reduced amount, or they can approve the short sale but just not waive the right to seek the balance owed.

A short sale will be recorded as mortgage paid in full if no judgement for the balance is sought.  A short sale, while it is a "ding" on your credit, is not as bad as a foreclosure.

That's it in a nutshell!! 

If you are considering a short sale on a property here at the beach, please let me know and I'll be glad to help you through the process.   

The difference between a short sale and a foreclosure is a foreclosure is a property that is now owned by the bank.  The foreclosure process has been completed and the bank has taken ownership.  The bank is now the seller (not the person who used to own and live in the house) and all negotiations are with the bank.  They still want to sell around market value, so the scenario of a $300,000 house is not going to be sold at $150,000 even as a foreclosure!!!  The process of buying a foreclosure is more streamlined in that negotiations usually are complete in a few days instead of waiting for a short sale approval.

I hope this clears up some confusion!

Don't hesitate to call or email me if you have any other questions!!!


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