Short Sales: Understanding a Lengthy Process
May 11, 2009 by Erica Jones Starkey · Leave a Comment
The phrase “short sale” is truly a misnomer for a process that can take months to complete. While short sales have become more prevalent in the market, many buyers (and sellers) don’t really understand exactly what it means. We continue to hear the surprise in client’s voices when we tell them how long short sales can take, “but we thought by the name they would be faster than normal sales?”
What is a short sale?
A short sale occurs when a homeowner attempts to sell their property for a price below their mortgage amount. The tricky part is that the lender has to accept taking less than what they are owed. The most obvious difference between a short sale and foreclosure is the ownership. In a foreclosure the bank owns the house, in a short sale a private owner owns it, but needs approval from the bank to sell it.
What this means for Sellers:
Though the sellers still own their home, they do not hold the cards. As much as they may want to sell it at a certain price, they are at the mercy of the bank for approval. The benefit of a short sale is that it is less damaging to a seller’s credit than a foreclosure. However, the short sale process does not stop foreclosure proceedings so if you are in default and trying to sell your home, you need to be very careful you are not foreclosed on in the process.
What this means for Buyers:
Short sales can be a good way to save money on a home, but you’ll spend a good deal of time waiting for it. Many make the mistake of thinking they will get a steal if they wait, generally there is around a 10% savings, but in copetitive markets that savings goes way down. It’s important to weigh whether it’s worth the savings or not to wait. Certainly don’t sacrifice getting a house you truly want to be in because you might get a “great deal” on a short sale. We always tell buyers to be flexible, but don’t settle either. The right house is out there whether it’s a short sale, foreclosure, or private sale.
Reasons short sales take so long:
The lender is looking at or wants to obtain multiple offers. They like to keep their options open.
If there is more than one mortgage on the house, the process is delayed while both lenders negotiate whether to accept less.
The current homeowner has to prove hardship to the lender before a short sale can be approved. Submitting and reviewing their documentation can extend the wait time.
While some selling agents have gotten smarter when it comes to listing short sales, many are still confused and unsure how to handle them. This can lead to major delays in getting the process started. It is important to work with someone who understands the process and can help move it along.
Things for buyers to expect when negotiating a short sale:
Expect to be kept in the dark. It generally takes a minimum of 4-6 weeks to hear whether or not your offer has been accepted by the bank and during that time you get very little if any information from them.
Expect that you will be competing with several other offers, and may need to change your offer at some point in the process.
Like foreclosures, short sales are sold “as-is.” Don’t expect credits for repairs, etc. after you submit an offer.
Expect to keep looking for other homes. There is no guarantee with a short sale so it’s smart to continue to look for other options.
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