A Buyer's Guide to the Short Sale Process
Short sales- do they represent a great opportunity to snag an exceptional deal on a quality property that found its way to the clearance rack, or do they add up to nothing more than a lender’s way of getting rid of a troublesome home that isn’t worth buying at ANY price?
As a homebuyer you have a number of different avenues you can travel down to receive the property of your dreams. Even though we usually only talk about conventional methods for purchasing homes it’s still a good idea to educate yourself on the various alternative methods you have at your disposal, such as the short sale process. After all, these alternative methods often provide benefits more conventional methods could never offer.
So what sort of benefits might a short sale offer you?
Before We Begin- What is a Short Sale?
A short sale refers to a buying process where sellers are willing to consider discounted offers in order to relieve themselves of a mortgage. To put this in perhaps less technical terms- short sales occur when sellers want to get rid of their property fast so they’re willing to sell it for significantly less than their initial asking price.
Most properties open to reduced offers will list themselves as a short sale. If you comb through property listing you’re probably going to see at least a few of these listings in the markets you’re interested in buying a property within.
As you can imagine short sales offer the opportunity to snag a deal on a property, allowing you to either purchase the sort of home you’re interested in for less than you initially expected or to buy a superior property while remaining within your allocated budget.
Digging a Little Deeper
Now, to fully understand how the short sales process works, you need to know one more bit of information about them- the property’s owner isn’t the one selling the property. Instead, it’s the property’s lender who decided to short sell it. Short sales aren’t For-Sale-By-Owner situations, they occur when the bank decides to cut its losses and sell the property and offload its investment as quickly as possible.
The Real Reasons Lenders Short Sell Homes
Negative scenarios certainly outline some of the reasons banks decide to short sell properties, but they don’t explain every instance of short selling. Sometimes banks short sell properties because a property’s value has dipped out of the profit margins they estimated when they crunched the numbers on the loan. Sometimes banks short sell when the property’s owner is current on their payments but taken on more debt than the property is worth. Short selling often occurs due to changes in valuation relative to the property’s original mortgage and that’s it.
Generally speaking short selling relates to selling a property at its current market value and not selling it below market value in order to offload it, which means even though short selling seems to indicate there’s something “wrong” with the valuation of a property it almost never indicates there’s something wrong with the quality of the property itself.
Banks do NOT have a tendency of short selling homes because they are in disrepair, or because they’re located on a newly discovered fault line, or because the property turned out to be haunted, or for any other reason that might spell trouble. Which means if you see a home that meets your needs up on the market as a short sale there’s a good chance you can snatch it up on discount.
Before you bid on a home, use a home mortgage calculator to determine what your overall budget is. You are much more likely to be welcomed into a reputable lender's office if you have done your homework and understand what you can afford. Additionally, you will feel much more comfortable if you are familiar with the numbers ahead of time.