Short sales in real estate are less common than traditional real estate sales, but happen more often than people realize. In fact, most home buyers aren’t even familiar with the term. So, what are short sales and how do they work?
Short sale definition
A short sale takes place when a home owner is forced to sell a home for less than what they owe on the mortgage. These sales tend to happen when property values drop or if an inflated appraisal was used to secure the loan. Bottom line: the value of the home is worth less than the amount owed.
Why do a short sale?
A short sale can help the seller avoid foreclosure, which would have a negative effect on their credit score. A short sale has a less negative effect on the credit score than a full foreclosure. In some cases, the lender may even report the debt as “paid in full” to credit bureaus.
Short sales often happen when a homeowner falls behind on mortgage payments and can’t see a way to catch back up. Sometimes it’s due to health or medical conditions or perhaps a job change. It can also happen when home values drop suddenly but the homeowner must sell the house anyway (moving, etc).
How does it work?
Lenders must approve and agree to a short sale because they would be receiving less than what is owed to them. This is what makes short sales complicated and somewhat tricky. These sales are generally not fast and buyers may find more effort required of them than with a traditional home sale. It’s essential to work with an experienced REALTOR when dealing with short sales. A professional agent will know how to navigate the process.
Other tips to know
First, a short sale does not automatically guarantee a great deal on a home. While it is possible to find some bargains, too often buyers think they can lowball offers and wind up missing out entirely. Second, the lender may include more terms that the buyer has to accept. Since the lender will be forced to cover the charges normally accepting by a seller, the lender may throw out a whole list of items they refuse to cover. Buyers should be prepared for a lot of negotiation with a short sale. Finally, it’s important to feel confident that the closing will take place. Liens, appraisals, and mortgage insurance will all need to be checked to prevent delays or the whole deal falling through altogether.
Bottom line: while we would always recommend working with a REALTOR, short sales absolutely demand it for a smooth process. Are you interested in seeking out more information on short sales in Nashville or other real estate options? Call DeSelms Real Estate today at 615.550.5565