What Is a Short Sale And How Does It Work?

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Real Estate

Are you a beginning real estate investor who is looking for some potential great deals on local homes? If so, you have probably heard about short sale homes, although it can take a bit of searching to find one.


Let's look closer at real estate short sales to learn how they work and when you might want to take advantage of one.


What Is A Real Estate Short Sale?


A real estate short sale takes place when a homeowner sells their home for less than they owe on it. This happens from time to time in volatile real estate markets where a substantial price increase took place with a rapid price decrease following thereafter.


However it happens, the homeowner is now facing a home with less value than their mortgage. They may approach their lender about a short sale, or the lender may force it on them.


A short sale can take place even if a homeowner is still making their monthly mortgage payments on time, although that is somewhat rare.


The thing to remember here is the lender is most likely going to take a loss on the home sale and therefore must approve the sale.


You're not just working with your lender and the seller, you're also working with the seller's lending institution; and they move slowly.


Stick With The Pros When Buying A Short Sale


Without question, if you are considering buying a short sale home you will want to work with an experienced real estate agent.


As we've shown, short sales take place due to a variety of circumstances, few of which are positive.


You will want a real estate professional who knows the ins-and-outs of the short sale process and will protect your interests. They can also help you understand what happens with the outstanding debt on the property.


More importantly your agent will work closely with the selling agent to find out what's happening at the lending institution.


Mistakes To Avoid When Buying A Short Sale Home


Unfortunately, there is no shortage of stories about short sale buyers who made a poor decision when trying to score a great deal.


First, ensure that all of the necessary research is done on the home, its title and any liens against it.  This is a critical step.


A home inspection is also key as there may be structural or other issues which led to the decline in value.


Finally, be sure to leave enough time for the closing process as it can take longer than with a traditional home purchase. 


You're most likely dealing with a bank or other lending institution at this point and they are notoriously slow.


Additionally, it's important to know if the selling agent has experience with short sales.  If they do that's a good sign because they might know the ins and outs of the lending institution.


As you can see, short sales have their pros and cons. If you are the one selling the home, you have likely been forced into a short sale due to your circumstances. If you are the one buying the home, you may be able to swing a great deal on it. Again, due to the circumstances. Regardless, understanding how short sales work is a good idea. To learn more about local real estate short sales, give me a call today and I'll be happy to help.


Short Sell


Cover photo: Cytonn Photography on Unsplash