Our market has been saturated with short sales for months, yet some confusion amongst buyers and sellers remains… So what exactly is a short sale and how does the “short-selling” process work?
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.
On the seller side, short selling usually occurs when a borrower can no longer pay the mortgage loan on their property, but cannot sell the property without having to bring money to the closing table either, due to the homes’ declining value. To ease the pain, the borrower asks the lender to authorize a lower marketing and selling price than what is actually owed on the note and forgive the difference. In most situations, a short sale is in both parties’ best interests because it allows them to avoid foreclosure, which involves hefty fees for the bank and poor credit report outcome for the borrowers.
In real estate circles short sales are sometimes mockingly called “long sales”—and for a good reason. The process is usually long rather than short and can be rife with problems and setbacks. Sellers and their agents have to be patient, practice superior negotiating skills and remain persistent throughout these bank transactions. Even when the lender agrees to a short sale, their agreement doesn’t necessarily mean that they will release the borrower from the obligation to pay the remaining balance of the loan (known as the deficiency) over time. Short sales typically enter the market at a very low price to attract a quick offer, and having the right strategy from the start is crucial. Not every Realtor is comfortable listing a short sale. A knowledgeable real estate agent will help the seller understand the many nuances of this complicated process, negotiate the best possible outcome with the bank and guide the seller through the entire transaction.
On the buyers’ side, short sales can be phenomenal deals for the right person—someone who understands the process and its pitfalls and can exercise the patience required to see the transaction through to its close. The Colorado Real Estate Commission recently became involved to protect buyers and ensure that they have the correct education and have considered the process thoughtfully and fully. The Commission requires buyers to read and sign special Short-Sale Addendums, Disclosures and Contracts before they offer on a short-sale listing.
The process is sometimes so financially and emotionally taxing that it results in lawsuits. For example, buyers pay to lock a loan at our historically low rates and their lock expires before the bank authorizes a contract (buyers may have been misleadingly told by the listing agent they will have an answer in two to three months when in fact it is likely to be five to eight months or more). Or the buyer waits six months only to then lose the home to another bidder, hear back from the bank that they will accept no less than $15,000 over the negotiated price or have the bank say no altogether. I always make sure my short sale buyer clients understand the “list” price of the home is not necessary the “sale” price the bank will agree to if and when they approve the short sale. The final price could be less and end up a good deal. But it could be more, too. In our fast changing market, the offer buyers made six months ago that seemed then like the deal of the century could no longer be that great of “steal.” Once again, when it comes to ensuring short sale success it is crucial for buyers to have a knowledgeable, dedicated Realtor working on their behalf.
Whether you are a seller thinking of short selling or a buyer interested in exploring the short sale process, contact me for the most up-to-date information—I’ll be happy to go over the entire process with you answer any questions you might have!