By Jesse McCarl
Welcome to HouseHunt’s BASICS Series, where we take a look at the questions of every homeowner and potential homeowner.
Today we’re taking a look at ‘short sales.’ You may know people who bought their home on a short sale, but you have no idea what that meant. Well here’s a little secret for you – they probably didn’t know what it meant either!
Simply put, a short sale is when a home is priced less than the amount the current owner owes on the mortgage.
But isn’t that the same as a foreclosure? So glad you asked!
A good way to view a short sale is like it’s like the Hail Mary before one faces foreclosure. With a foreclosure – also called a real estate owned (REO) property – the owner of the home defaulted on the mortgage payments and lost the house entirely (and probably some other collateral). So when you buy a foreclosure, you’re getting it cheaper than you would normally pay because you’re buying it from the bank. With a short sale, you’re buying it from the previous owner.
People file for a short sale because it’s less damaging to their credit than a foreclosure, although neither is good news for a credit score.
Pros of a Short Sale
First and foremost, short sales are great because you’re getting the property for a lot cheaper than it would otherwise be valued. Often, you’re getting it even cheaper than you would if it were a foreclosure because you’re just paying off the remainder of a mortgage. You automatically have a lot of equity in your home.
Another benefit of a short sale over a foreclosure is that the house doesn’t sit vacant. When a home is foreclosed on, the owner is kicked to the curb. This means while the house is on the market, no one is really maintaining it, which opens the window (sometimes literally) for pests, an overgrown lawn, and more.
Cons of a Short Sale
A lot of factors go into the legality of a short sale. There’s nothing for you to worry about here – that’s what you have a Realtor for – but it still presents some situations you should be aware of.
First, there’s no set timeline for a short sale. With a standard home purchase, you can clarify your expected move-in date; the short sale process could take weeks or months to go through. This means you should be in a flexible living situation so that if you need to stay in your current spot longer or shorter than expected, it won’t be a concern. Living with family or a month-by-month lease are great solutions to this problem. Now would be the ideal spot to make a joke about how “short sales” are inappropriately named.
To avoid an unreasonable wait on a short sale, research the bank that owns the home first. Find out the length of their standard short sale process.
Second, you buy short sale listings “as is.” There is no room for negotiations. A lot of the stuff that you would normally have remedied after an inspection – broken appliances, stained carpet, shoddy roofing – cannot be changed unless you want to pay to fix it yourself. So when you’re looking at how much money you save with a short sale, also take time to calculate how much you’re going to have invest in the home’s condition.
Short sales are a great solution for a lot of homebuyers. However, they can also be a headache for the wrong clientele. The first step in making sure a short sale is the right fit for you is understanding exactly what is a short sale – and we hope this synopsis has accomplished that so that you can focus and buying the home of your dreams!