For First Time Home Buyers, I always get the question, "What is a short sale?" The real estate market is taking a turn in the right direction compared to where it was in 2009; however, there's still a significant amount of short sales on the market.
I'm here to answer your question. A short sale is a when a homebuyer decides to sell their home. However, the homeowner purchased the property for more than it’s actually worth. For example, Tim purchased a home in 2005 for $500,000. Its now 2014 and the current market value of the property is $400,000. Before Tim can sell his property to the eager buyer Emma, the mortgage company/lienholder/bank has to agree to accept the "shortage" of $100,000.
This is where the term short in short sale comes from. There is a misconception that short sale refers to the amount of time it takes to purchase the property. This is totally incorrect! A typical short sale takes at least 90 days before ownership can convey and the buyer can host their house warming.
Why 90 days you ask? The bank has stacks and stacks of other files that need to be processed. They have to analyze the sellers’ bank statements, pay stubs, tax returns; reason for selling and the list goes on. If something is missing in the file, it can delay the process. Once the seller has submitted their life's paperwork to the bank and Emma has submitted her offer to purchase the property, the bank will issue an "APPROVAL".
The approval states the bank is willing to accept Emma's offer to purchase the property at $400,000 and any other terms within the contract.
As an agent, I personally advise my First Time Home Buyer clients not to even look at short sales. Their emotions are going haywire, the anticipation is high and they are eager to finally have a place to call their own. It will be a buyer’s worst nightmare if they go through the trouble of finding a home, showing their mother, brother and uncle that has a contractors license and the seller decides at the last minute (better yet, after 90 days) they don't want to sell their property. How will this make you feel as a buyer? Betrayed, frustrated, sad and confused at how they are able to do this to you. In a perfect world, short sales wouldn't even exist but they do and this does happen.
It my job to help my clients achieve the American Dream, not build them up to have their dreams crushed. I can say with confidence that short sales are a pain in the derriere for most agents. However, with the recent changes, short sale negotiators have streamlined the process.
With every ying, there is a yang. The positive sides of short sales are the steep discount at which they can be acquired. According to the National Association of Realtors (NAR), short sales sold for a 14% discount in April 2013 compared to market prices. To quote NAR, "In some states, short sales still remain a high proportion of sales. RealtyTrac notes that the states with the highest percentages of short sales in October were: Nevada (14.2%); Florida (13.6%); Maryland (8.2%); Michigan (6.7%) and Illinois (6.2%)."
My goal is to educate buyers and sellers. I want to demystify real estate to make my job easier. I'm not totally against short sales but I will say, proceed with caution.