There's Nothing Short About a Short Sale

Most people have heard the term "short sale" in the news.  It's often talked about in conjunction with "distressed properties" and foreclosures.  But I often encounter buyer's who don't know exactly what a short sale is or how it works or how it differs from foreclosed properties.

So here's a simple explanation and then some things to consider about short sales...

A short sale refers to a home where the owner is upside down in their mortgage.  In other words, they owe more than it's worth.  So they are basically asking permission from their lender to sell the property for less than what's owed.  It means the bank takes a loss.

Sometimes banks will forgive the difference or "shortage" and other times they will require the home owner to sign a promissory note for the difference.  So if you are selling, it's best to consult an attorney and other professionals to provide you with accurate information and protect your interests.

Keep in mind though that a short sale does NOT mean that they will necessarily sell the house for less than it's worth.  Most banks will insist that the home owner (with the assistance of a real estate agent) try to get what ever is fair market value for the home at the time.  Over time, they may agree to price reductions until an offer is produced, but the bank can counter-offer back to the buyer for more.

Basically, there is nothing "short" about a short sale.  The time frame for closing on one of these properties has improved as the banks have gotten better at handling them.  However, there are never any guarantees.  Here in the Charleston, SC area a "normal" sale can take 30-45 days from the time you go under contract to the time you sit at the closing table.  However, with a short sale, it can takes weeks or even months to just get an initial response from the bank.  They may accept, reject or counter the offer.  So a short sale may not be the best option for someone who has a specific time frame for moving into a new home.

A foreclosure on the other hand is a property that the bank has already taken possession of.  The homeowner is already out of the picture and it is bank owned.  These properties can usually close in a more "normal" time frame of 30-45 days.  And here is where you can sometimes get a real deal because the banks want to get rid of these properties.

One thing in common between foreclosures and short sales is that the bank is already taking a loss on these properties.  Therefore, most of these homes are sold "as is".  When buying, I strongly recommend that you insist on making any home purchase contingent on the buyer's approval of a home inspection, but especially in a case where the home is being sold "as is".  This way if there is just too much wrong, too many costly repairs needed or it's more than you feel comfortable dealing with, you can back out of the contract without penalty.

Occasionally, you may be able to negotiate some repairs or get the bank to assist with closing costs.  You never know until you ask, but be prepared for a negative response to those requests.  Then if they agree, you'll be pleasantly surprised.

There are so many variables with short sales that it's imperative you have an agent who can assist you through the process.  Banks are insisting that if you are selling a home as a short sale that it be listed with an agent.  But even if you are the buyer, I recommend having an agent who has dealt with short sales before and can forewarn you of potential pitfalls and help navigate through the ever changing process.

I can't begin to cover all the ins and outs of distressed property sales here.  And every market varies.  So please consult the appropriate professionals to help you if you are considering buying or selling this type of property.  Of course I'm happy to assist if you are looking in the greater Charleston/Summerville, SC area.

Maria Pettis
Realtor, SFR, ePRO
Century 21 Properties Plus
maria@mariapettis.com
843-860-3901