Short Sale

A Real Estate Short Sale is when the real estate is being sold or offered for less than what the current owner owes the bank or lending institution.

Banks do this as an alternative to the lengthy foreclosure process. The full foreclosure process can take from 12 to 24 months from the time a person stops paying the mortgage. This also reduces the banks' legal and holding cost because typically lived in properties show better than vacant properties and therefore have a better chance of being sold.

What is the difference between a foreclosure and a short sale?

(Short Version) A foreclosed home has already been taken from the owners.
A short sale is when the lender agrees to accept a sales price less than what the current owner owes on the home.

(Longer Version) In this current real estate market many lenders are agreeing to work with home owners and accept less than their current loan amount.

THE GOOD:
Potential to get a great price. This may result in you getting a very great price on these properties. Another good thing about short sales is the owner may be living there and maintaining the property.

THE BAD:
4 weeks - 12 weeks for counter offer or acceptance. This means many more offers could come in after you have submitted your offer. The bank needs to approve the offer. Most lenders will not let the owner know how much less they will accept for the loan until they have an offer on the table to purchase the property.

THE UGLY:
What you see may not be what you get! In some cases, properties are being marketed for much less than what the bank is willing to accept. No Recourse (everything as-is)

EX. The property is on the market for $450,000 so you offer $430,000 and expect the lending institution to give you a counter offer between $450,000 - $430,000.

8 weeks later you get a counter offer of $525,000 and you are now very mad.

Why does this happen? There are 3 parties involved in selling the property but only 2 of the parties are setting the price. The problem with this is the party not involved in setting the price is the one that will make the decision to accept the final price.

What I mean by this is that the parties setting the listing price are the owner and the realtor. The owner currently has no vested interest in the property and will get nothing when the property sells. The realtor has a limited time to get the property sold prior to the foreclosure being executed and wants as many offers as possible before that occurs. The 3rd party, is the bank and they are the ones who approve the final sales price.

This can result in properties being marketed significantly below the balance owed on the property. This is done in the hopes of getting some offers into the lender to find out what the lender is willing to accept. Another issue arises when dealing with short sales, very often there is an undisclosed 2nd mortgage on the property which can stop the short sale from being able to be completed.

These problems pose an undisclosed burden to potential buyers who are unaware these pitfalls.