When my lawyer-daughter told me she wasn’t sure what a “short sale” was, I decided it was time to get back to basics in my blog!
Short Sale Defined:
A short sale occurs when the mortgage holders (the seller’s lender) agrees to discount the loan payoff for a seller who owes more on the home’s loans than the home is currently worth. (Technically, the home could be valued at or slightly above the mortgage loan value, but expenses of sale would wipe that difference out, also requiring a short sale.)
Advantages of Short Sales for Buyers:
Short sellers are likely to still be living in the home and may be maintaining it, so short-sales listings may be in better shape than foreclosed properties. Yet, unlike traditional listings, you know the seller is motivated. The actual condition of the home depends on the level of distress of the homeowner. You’ll at least have a seller who has lived in the home and can tell you about its quirks and history.
Disadvantages of Short Sales for Buyers:
These transactions aren't short when it comes to time from contract to closing. The work involved in obtaining the seller’s lender’s approval for the sale can cause the process to drag on several months longer than a normal home sale. With a well-prepared, persistent agent, that time crunch can be relieved. And some lenders are better than others. The U.S. Treasury recently issued new guidelines for lenders that, starting in April, will provide incentives for them to move faster and close more short sales.
Advantages of Short Sales for Sellers:
The impact on your credit standing will be much less so it will be easier for you to buy a car and rent a home, and you’ll be eligible to buy another home in many fewer years than if you simply walk away from your current home and let the foreclosure process happen.
If you own a Flagstaff house that you need to sell and can’t pay off the entire mortgage balance, or if you want to buy a Flagstaff home that is listed as a short-sale, be prepared for what you're getting into. The paperwork for the seller is immense compared with a standard listing and sale – it’s more like buying a home with a loan than the typical seller-side contracts. Though banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, the bank’s negotiators are flooded with short-sale offers and are generally understaffed for the volume they are being hit with. If you're a buyer, don’t expect a smooth transition to a short-sale home – you won’t have a firm closing date for a long time after you agree to buy.
Find the right real estate agent to represent you. Make sure the agent will be up to the tough negotiating task ahead. Agents have now had plenty of opportunity to have training by the Certified Distressed Property Institute® or with the new National Association of Realtors® Short Sale and Foreclosure Resource courses. (I’ve done both.) If the agent you are talking with hasn’t done any training and hasn’t yet been involved in some actual short-sale transactions that have closed successfully, think about getting another agent.
Last year at this time, there had been very few short sales accomplished in Flagstaff. In the last half of 2009, there were many – and there are many more to come!
To buy or sell any Flagstaff home, contact me: Ann Heitland at RE/MAX Peak Properties.
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