Do you want to gather information about short sale real estate? Many people dream about owning their homes. But if you’re going to achieve this status, you need lots of savings and a high credit score. But maybe someone has told you about the short sale process or buying a short sale home. However, it doesn’t matter what you have heard. If you want to get into this, then understand it’s a complicated process. If you buy a short-sale property, then it could turn into an opportunity or disadvantage. In short, it’s a more complex process than buying an ordinary home. So, to eliminate complications then it’s better to move forward after getting proper information.
What is short-sale real estate? An ultimate guide:
We term the short sale process as a voluntary thing that happens when the owner sells the property. But the selling amount is less than the original value of the property. If we simplify this definition, then short sale real estate is a process where homeowners agree to sell the property for less than the amount they are liable to pay in the mortgage. But the buyer of these types of properties is third party lenders and not banks. However, the selling amount directly goes to the lenders. Moreover, there are two further steps that a lender can take regarding the property.
- The lender can forgive the remaining balance to the buyer.
- Apart from this, sometimes the lender agrees to receive the difference in parts or installments.
The main aim of selling a short-sale home is to avoid foreclosure. The foreclosure proceedings are expensive and time-consuming. So, lenders prefer short sale foreclosure because many other buyers are in the line. To get a complete guide, we should discuss the following terms:
What is Foreclosure?
Foreclosure is different than short-sale real estate. In this condition, the bank takes the ownership of property for which the buyer can’t pay. But here, it’s vital to mention that short-sale foreclosure homes are abandoned due to price drops. But if the homeowner is already living in the property, then the lender will evict the property to recover as much amount as possible. However, there are many methods like auctions, real estate agents, etc., to sell the property.
Vital points in short sale foreclosure:
There are many misunderstandings about short-sale real estate. But the right guide is what helps to eliminate all ambiguities. If there is any short sale foreclosure, then it should contain the following things:
- The homeowner must be so far from meeting the whole payment limit.
- We term a property short sale foreclosure if its value is less than the remaining mortgage balance.
Generally, the lenders want to short-sell property to get whatever amount they can earn. But the lender sells the property to recover as much loss as they can. If the lender has more time, then they can delay the process to get a better price.
Short sale real estate vs. foreclosure:
If you are vowing for short sale or foreclosure, then understand that none of these are easy. Above all, few points help to differentiate between both.
Short sale real estate
Homeowner initiates house selling process
The lender starts the selling process
Property should be less than the payable mortgage amount
Bank takes ownership of property
Short sale can’t happen without lender’s approval
Foreclosure homes are abandoned
The process is lengthy and time taking
Takes less time
If we talk about the time, then short sales take from a few weeks to months. It involves challenging transactions that consume more time. At first, the lender determines whether the short sale real estate is more profitable than foreclosure or not. If a lender sees more profit in foreclosure, then they may reject a short sale deal. Moreover, you can hire an experienced real estate attorney if you want to reduce time. All agents don’t know how to handle the short sale process so go with the one who demonstrates special training.
Which one is better?
If you ask about our preference, then a short sale is better than foreclosure. Here are the following reasons due to which short sale process is preferred over foreclosure.
Apart from this, it’s vital to keep in mind that you can’t get a mortgage loan for another seven years in case of a short foreclosure sale. So, lenders prefer short-sale real estate to eliminate costly legal processes without any hassle. Due to all these reasons, lenders prefer the short sale process over foreclosure.
How to find short-sale real estate?
If you are buying a short-sale home, then it’s not a challenging task to find one. But if you are a lender, then it’s easy to list the property online. There are specific rules that will have to be followed for short sale foreclosure. For instance, it’s mandatory to write “Short sale” real estate while listing the property in Florida. But some other states use the following words to document the short sale property:
Subject to bank approval
Third-party review required
Pre-approved by bank
So, these are few terms that signal the property will follow the short sale process. Apart from this, you can dig the short sale foreclosure deals in public records. In public record, the listing doesn’t have any photograph or any other thing like this. Typically, the details include the bank’s name and the amount that is owed on the property. But before buying any property, search the public records to know if there is a due amount. So, if you want to find a good deal, it’s better to work closely with a real estate agent.
Make a short sale offer:
The buying of the short-sale home is a little different than foreclosure. Earlier, we discussed step-to-step processes. But you can’t finalize the deal unless the lender agrees to receive less than a mortgage payment. If you are making an offer, then here are the following documents that you should attach:
- Start with the listing agreement
- Attach purchase agreement
- Pre-approval letter of buyer
- The appraisal statement that contains the property value
- Information that entails if the property needs repair
- Photocopy of the money check
- A short sale real estate property should include all the payments on property that are owned.
So, before buying a short sale home, gather the information about the area where you will invest money. If you involve third parties, then it may be challenging to handle the process. So, try to keep the short sale process in a bubble to save time.
What are the steps to buy a house by using the short sale process?
After reading the above introduction now, you know the main points and how the short sale works. So, before getting into this, here are the following steps that you will have to follow.
After assembling the proposal, don’t forget to negotiate the terms before sealing the deal. But while assembling the agreement, you need to gather documents like:
Statement of property’s value
A detailed description of costs
Detail of all liabilities on house
Steps to follow:
Apart from this, here are steps that will help you to go in the right direction. It is an estimation, but you can add more to ensure smoothness in the process.
- Step # 01: The homeowner is the one who contacts the lender to initiate the process of short selling. However, at this stage, they submit a short-selling package which they refer to as an invitation. In simple words, it’s proof that the seller can’t pay off the mortgage and need help to catch up on payments.
- Step # 02: At this point, the homeowner initiates a short sale process by working with the real estate agent. The real estate agent brings the buyers who are interested in buying property. But you can’t use that agreement without getting the employee’s approval.
- Step # 03: Now, the ball is in the lender’s court, and they review the documents. The main aim of this is to get lenders’ consent. They have the authority to accept or reject the offer.
- Step # 04: Here, at this point, the lender responds to the homeowner or buyer by proposing a contract. But here, the potential buyer reserves all rights to accept or reject the lender’s proposal.
- Step # 05: At this step, the contract is closed according to the terms and conditions mentioned in the agreement.
After all these steps, the lender releases the property after reviewing documents. Later, the lender reviews the money and removes the homeowner from the responsibility of cash payment. The lender is responsible for writing off the payment even if the property value is half what you need to buy.
Things to keep in mind when making short sale offers:
Short sale real estate is easy to understand because it involves simple steps. Moreover, it takes less time if you follow the rules. But before getting into any deal, here are the following things that you should keep in mind:
- The first thing you should consider is that the lender has agreed to get into the short sale process. We already explained earlier that in short sale real estate, the lender receives less money than homeowners. So, in this condition, the lender needs to agree on the terms.
- In addition to this, read the short sale package carefully before locking the deal. Moreover, don’t forget to hire a short sale specialist for process handling.
- Apart from this, keep in mind that it’s your responsibility to prove that you don’t have any other option to pay off your mortgage as a homeowner.
- Moreover, the market price should be according to the level of the property market. The person who is buying a short-sale home should get the value.
Note: Apart from the above rules, it is mandatory by law to disclose the upfront and remaining mortgage payment on the agreement. In this way, the person buying a short-sale home is aware of the mortgage amount.
Frequently asked questions: FAQ:
Short sale foreclosure is a lengthy process, and before getting into any of these, it’s better to gather the right and authentic information. Despite explaining everything in detail, here are questions that are worth discussing.
Should buyers opt for short sale foreclosure?
A short sale is a good idea but before choosing this one do your analysis. But in simple words, it’s a good idea and comes with many advantages that’s why it’s a good idea to buy a home at a reduced price. It takes time and money, but after closing the deal, you will have to move into your home as soon as possible. If you randomly end up in a short sale foreclosure deal, then it’s a good option. But if you are searching on your own, then the short sale process for new buyers comes with many unknown factors. Most buyers don’t search actively for the properties and start the process all over again if the deal doesn’t work. On the other hand, even if you are an investor, it is vital to be careful with the short sale process.
What is the best and reasonable way to negotiate for a short sale?
If you are a pro-investor, then you are already aware of the process. But if you are new to this, you will have to adopt certain precautions while finalizing the deal. A short sale negotiation is an integral part of when you are ending up with a contract. So, to get into a good deal, here are some tips that you should follow.
- I always prefer working with an experienced agent/investor. It is vital to find an agent before even talking with the investors, banks, and lenders. If the bank and lender approve the process, you will go towards other steps on the list. But if you work with a less experienced agent, you could end up taking too much risk. So, ensure you are hiring the right agent for the job.
- Stay resistant to your efforts because banks are notorious for their short sale process. So, if you want to lock a reasonable offer, then stay persistent with your actions. Moreover, if you’re going into negotiations, try to remain polite and don’t break down. It means if you stay consistent, then you will end up in a successful short-sale real estate deal.
Earlier, we have discussed that the short sale process is lengthy. So, start the process before and timely. Some banks close the deal in as little as two weeks. So, start the process early to cut the time.
Who benefits from the short sale deal?
If we look in-depth, then the short sale process is beneficial for both parties. But sometimes, the benefits depend on the conditions. Short sale foreclosure is subject to the lender’s approval. However, the lender approves the deal if they think they are in profit. Here are the following principal reasons due to which lenders don’t opt for short sale deals:
- If the homeowner is successfully making regular payments, then the lender doesn’t have any reason to go for short sale real estate. But if a homeowner issues a notice of default, then the lender can consider the foreclosure process.
- Apart from this, if an owner declares bankruptcy, then people can start short sale negotiations. The negotiation related to the short sale process is only allowed in case of default.
But the short sale is swifter and less time-consuming than the foreclosure. So, lenders want to avoid foreclosure and give approval for short sale foreclosure.
What are mistakes that short sale buyers make?
If you are buying a short-sale home, it’s vital to keep an eye on specific points. But naive buyers commit mistakes that they should avoid. So, here are the following points that are vital to avoid:
Don’t skip the home inspection
If you ignore legal and insurance information
If you leave too little time for closing
Think of yourself as an investor and don’t invest in a wrong property
If you don’t get a home appraisal
Most importantly, you need to ask whether the property is worth your money or not. If the home is in short-sale real estate, then it doesn’t mean you should buy this. It’s vital to complete your search before investing.
What are the benefits of short-sale real estate?
Homeowners go for a short sale if they can’t pay off the mortgage. As a result, they want to move from the property by avoiding foreclosure. So, the short sale brings certain benefits compared to foreclosure:
- The short sale enables homeowners to avoid the headache of foreclosure. Moreover, it allows smooth and graceful housing transition.
- If you are buying a short-sale home, you will end up locking a home deal where the price would be less than the fair value. So, in this way, you can avoid buying a foreclosure property.
- Apart from this, the sellers minimize the losses by avoiding foreclosure and reselling the property.
Above all, parties like listing agents, buyers, appraisers and mortgage brokers, insurance, and title companies earn a profit. The profit will be in the form of service charges that sellers, buyers, and lenders pay.
Does a short sale badly affect your credit score?
Short sale foreclosure is a process that involves many parties like lenders, buyers, and sellers. So, it’s like a mixed deal for all these parties—the short sale affects the seller’s credit score but not as bad as a foreclosure. But a short sale could lead to foreclosure that later impacts the credit score. The buyer who is buying property at less price ends up in a shared problem like a fixer upper. Apart from this, if we look at it from the lender’s side, the lender ends up at a loss. But there is a difference: the loss ratio isn’t as big as a foreclosure. So, all parties involved in the short sale process agree on receiving a loss. But in most parts, everyone gets some benefit from a quick sale. In simple words, short sale helps to save from worst outcomes.
Should you sell your home through a short sale?
“Short sales are less competitive because investors want fast money, and they don’t want to wait for several months.”
It is the most common question that pops up in people who are dealing with financial losses. But the decision entirely depends on individual conditions and situations. So, before taking a decision, ensure what will work best for you in the long run. For instance, if you cannot pay the mortgage and property prices are dropping in your area, you can’t do anything other than short sale real estate. Moreover, the short sale process helps you to some extent to save your credit score because foreclosure has adverse effects. So, carefully read all options to know what works best in your situation.
Pros and cons of short sale real estate:
You can’t get a complete picture without knowing about the advantages and disadvantages. So, here is the list of all pros & cons:
You will end up getting a good home deal
A short sale is a long process
Price will be less than the market value
It requires the lender’s approval
It’s closer to traditional real estate transactions than foreclosure
The lender can reject your offer
By being involved in a lengthy process, you can miss other potential opportunities.
A short sale gives fast money & you don’t need to wait for months
The lender usually goes with cash payments
If you compare a short sale home and foreclosure, then a short sale is better. Apart from this, short sale homes are always occupied. That’s why they are always in better condition.
How to negotiate a short sale process?
A short sale is an easy thing then, but sometimes it could be time-consuming. But if you want to communicate with sellers, then negotiate in the most traditional ways. Moreover, the lender must approve the short sale process. Thus, if you will indulge in a short sale process, then know you need to work with homeowners and lenders. But there are ways and tricks that you will have to consider while negotiating.
Why does the short sale process take longer than usual?
The short sale process takes longer than usual because there are many parties involved. Above all, the seller’s mortgage lender reviews the documents. Apart from this, the documentation takes significant time. The process involves parties like junior lien holders and sellers that could delay the process.
The short sale real estate process is not short nor straightforward. So, if you want to sell your home, it’s better to hire an expert for complex tasks and legal advice. If you try to manage the whole short sale process on your own, then the short sale process could be exhausting. Thus, it would help if you had the patience to grab a deal at an even better price. But a good deal is the one that gives an attractive profit margin to investors. You can gain all the good deals if your communication skills are good. We have many famous examples where investors are making big by buying a short-sale home. But before starting things, make a contract with the lender to make the process and transactions smooth.