We’re seeing more “short sales” these days.
A short sale occurs when a seller has negative equity at the time of sale.
In other words, after commission and closing costs, there isn’t enough money remaining to pay off the financing on the home.
This can easily occur with a seller who bought a home during our hot market a couple of years ago with little or nothing down.
For example, let’s say a seller bought a $300,000 home in 2005 with nothing down.
Typical sales costs, including commission, closing costs, and prorations are usually around 7.5% of the sales price.
That means that the seller would net about $277,500 if their home was still worth $300,000.
But, their home is probably worth more like $275,000 in our current market.
That means our seller’s net would be $254,375 after sales costs vs. owing nearly all of their original $300,000 loan amount.
The only reason a lender will consider taking a loss by agreeing to a short sale is that they want to avoid foreclosing on the property and losing even more money.
Lenders require extensive documentation and proof that a seller can’t make good on their loan before they will agree to take a loss on a short sale, but they will (usually) listen if a seller can prove that they are going to lose the home in foreclosure.
The fun part?
Well, there really isn’t a fun part with a short sale – they’re a pain for all involved because the lender is calling the shots; not the seller.
And lenders aren’t known for their responsiveness or marketing prowess when it comes to short sales.
They often take 30 days (or more) to respond to a short sale offer, then play interested buyers against offers.
Then, they sometimes ask buyers to resubmit their offers and get a bidding war started instead of counter-offering and negotiating in good faith.
Short sales aren’t much fun, but we’re going to be dealing with them for the forseeable future.Buyer Stuff, Inside Real Estate | Print This Post | No Comments »