If you have been home searching at any point during the last ten years, there is a good chance you’ve come across a home listed as a “Short Sale” or “Potential Short Sale.” Over ten years ago, it would have just been called “upside down” or “selling short” in conversation. These expressions may still be used to describe when the property is worth less than the owner owes on their mortgage. However, due to the sheer volume of people affected by the market correction around 2007-08, the industry coined the shorthand term “Short Sale” for use in listings.
Homes listed as Potential Short Sales are usually listed about 10-20% lower than the current market prices. The banks allow this, because they recognize that traditional buyers cannot or will not wait the extended time it takes to get the sale negotiated. Unfortunately, there isn’t much that is short in the short sale process except the shorter sales price. Because there are multiple parties involved (owner/seller, buyer, real estate agents, short sale negotiator and a bank representative) this process is literally a ballet of communication when done correctly, and a convoluted mess when done poorly.
In over eight years of real estate experience, I’ve been involved in my fair share of both sides of short sales. As a seller, the benefit to a short sale is less damage to your credit than a foreclosure. As a buyer, you can acquire a property at a lower price as long as you have time and patience. If you have the ability to wait 6-9 months for your next home, you’ll likely benefit by closing on a home that is below market value and save yourself thousands of dollars.
There are success stories of settlements 90 days from contract to closing and horror stories of the process taking 3 years to get settled. It depends on a lot of factors. Usually the most important is communication. If your negotiator, agents and bank representatives have good lines of communication, the process can go smoothly.
Overall, the short sale process is only a nightmare if you don’t know what you’re getting into. As long as expectations are set properly…It’s a great way to save the seller’s credit and the buyer can save a ton of money. Make sure your agent has the knowledge to make it as easy as possible.