There are a lot of them on the market right now, so you might be wondering “what is a short sale?”
The term “Short Sale” is a bit misleading. There's nothing short about them. In fact, short sales can be extremely long and drawn out transactions that can take many months to close.
What is actually meant by the phrase “short sale” is that the seller is trying to sell the house for “short” of what they owe the bank.
Typical Short Sale Scenario
Here’s a common scenario: a family purchased a home at the price peak of the Albuquerque real estate market (2007) and put little or no money down. Shortly thereafter, the real estate market crashed, their house value declined and the homeowners found themselves “upside down” on their mortgage, meaning they owed more than they could sell for.
The family might have tried to sell that house for what they paid plus commissions and closing costs, but home buyers knew it was overpriced, and so they were unable to get it sold.
Sellers who find themselves in this position are left with two options: they can sell at the current market value and bring the extra cash to closing, or they can ask their bank to forgive the difference. When the bank agrees to forgive the difference it's called a “Short Sale.”
Why Short Sales Take Longer Than Regular Sales
In a regular sale, when you make an offer it goes directly to the homeowner. They may accept your offer, or they may issue a counteroffer, but once you reach agreement you're done. The house is placed into pending status and you move towards closing in 30 to 45 days.
In a short sale transaction, however, there is an extra step, and it's big one. Once the seller agrees to the terms of your offer the contract has to be submitted to the bank for short sale approval.
That is when the waiting begins.
Sometimes the bank or lienholders will get back to you quickly, in 30 days or so. However, in other cases the banks take much longer than that. In the worst cases, I've seen it take up to 9 months to for the bank to approve a short sale
Also, there’s no guarantee the bank will accept your offer, even if it was at list price. Sometimes they come back and ask you to pay more than the home was originally listed for.
Here's another possible wrinkle: while your offer has been sitting at the bank waiting for someone to pick up the file the house may remain on the market and may receive backup offers. The bank can ask the listing agent to submit the highest and best offer, and if yours is lower, you lose the house.
Is This The Best Way to Get a Good Deal on a House?
You may have heard that buying a short sale is a good way to get a great deal on a house. Sometimes it can be, but there are many more disappointing stories than there are good ones.
Foreclosures, on the other hand, are relatively easy to buy. Once the bank has taken the property back they are much more motivated to sell. Although every bank works differently, most of them price the bank owned homes below market value and try to sell them fast. When you make an offer you usually get a response in 72 hours.
by Rich Cederberg, Albuquerque real estate agent (505) 803-5012