While short sales were widespread between 2008 and 2012, they are much less common in today's hot real estate market. Nevertheless, foreclosures and short sales may be a standard components of the housing market. A short sale may result in substantial savings, but achieving this goal requires perseverance, patience, and a healthy dose of luck. A short sale sells a home for less than its total market value.

The Meaning of a Short Sale

Mortgage lenders engage in a short sale when they accept a payback amount that is less than what is outstanding on a borrower's mortgage to allow the borrower to sell a property. The lender cancels the remaining sum of the loan.

A home through a short sale is distinct from purchasing a foreclosed property at auction or an REO (real estate owned) home from a bank. The homeowner may need to sell the house in this case because of negative equity.

Difference between a short sale and a foreclosure

The process of a short sale differs from that of a foreclosure. During a foreclosure, the lending institution takes back the property and tries to sell it for a profit. Lenders will agree to a short sale when they realise they will not make money on the sale. This is preferable to foreclosing and then handling a new transaction.

How Does A Short Sale Help Those Involved?

In short, the buyer, the seller, and the lender might expect various outcomes from a quick sale. A seller's credit may take a hit, but it won't be as bad as it would be in the case of foreclosure if they choose to go the short sale route instead. And since you won't be getting anything out of the arrangement, it'll be tough to find and afford a new place to live if you leave your house.

A short sale, however, can prevent foreclosure and the associated damage to your credit score. As long as the homeowner can convince the lender to report the debt to credit bureaus as "settled in full," a short sale is preferable to foreclosure.

Is a short sale the best option for selling my house?

Whether or not a short sale is right for you depends on your unique circumstances and your expectations for the future. If property values in your neighbourhood have decreased and your mortgage payments exceed your income, you may be left with few options. A short sale may be an option if you're trying to prevent a foreclosure on your credit report.

Just how long does it take to close a short sale?

The duration of a short sale might range from a few weeks to several months. Due to the short sales' complexity, the process might drag on for quite some time. Furthermore, the quick sale offer must be evaluated by the original lender. Lenders may reject a short sale offer if they anticipate making more money during foreclosure.

The purchaser saves money by purchasing the property at a foreclosure auction. Still, the property will likely need repair (think "fixer-upper"), and the transaction must go through extensive bureaucracy. A lender may also insist that a buyer cover additional closing costs typically shouldered by the vendor. The lender incurs a loss, although possibly less than it would have incurred had it foreclosed.

It's called a "short sale" when the money made from the deal isn't enough to cover the seller's mortgage and other liabilities. Everyone who stands to gain financially from the transaction must be willing to settle for less or perhaps nothing. Because of their complexity, short sales are notoriously time-consuming and prone to failure.

All parties involved in a short sale gain something, but they also all lose something. A quick deal is ultimately about avoiding the worst possible results.

If A Short Sale Doesn't Go Through, How Often Does It Happen?

Inevitably, short sales fail because of the complexity involved. Be ready with the following to lessen the likelihood of a failed short sale.

Working with a real estate agent familiar with short-sale transactions might reduce the time it takes. It is highly recommended that you get the counsel of a licenced real estate agent or attorney before entering into a short sale. Working with a real estate agent with experience and training in handling short sales is essential because not all agents are familiar with the process. The odds of completing a short sale improve when you work with a real estate agent that is familiar with the process and has negotiated previous fast deals.