The short story on short sales - 5 things you need to know

I get a lot of questions about short sales. Some from people who hear a lot about them but aren't quite sure what they are, and some from buyers who think they want to buy one. Here's the thing. Short sales can be great deals but they're not for everyone. Here is a quick summary of what they are and 5 things you should know about them before pursuing one (as a buyer or seller):

In short, no pun intended, a short sale is a situation where the homeowner sells a house for less than they owe on the mortgage. It is typically a proactive step by the seller before it gets to foreclosure stage. In this case, the homeowner still owns the home, is in some kind of financial distress, and has the cooperation of the bank to sell and settle for less than what the bank is owed. As you might guess, the bank (in addition to the seller) has to agree to all offers.

1. Short sales are NOT for the buyer who has a specific timeline on when they want/need to move. You cannot control when the bank will respond to an offer so there is a LOT of uncertainty. As a buyer, you need to have a lot of flexibility and patience. I worked on one last year where it took the bank three months to even respond and let us know the buyer's offer was accepted. They are not on any timeline so you just have to wait. This can be exacerbated when there is more than one bank involved (second mortgage), in which case all the banks have to agree on a settlement/sale amount since they are all losing money (who takes the biggest hit, etc..)

2. Part of the seller's process in working with the bank on a short sale is the submission of a financial hardship letter. If you're a seller, be prepared to write one and explain why you are pursuing a short sale. You have to convince the bank to work with you. As long as there is a legitimate reason and real risk of foreclosure, there is a good chance they will cooperate as they are not interested in owning your home.

3. Banks will rarely agree to any repairs or other concessions as part of a sale agreement, and sellers often do not have the cash to do it themselves. Buyers should be prepared to handle all necessary repairs on their own after the purchase. While it's not always the case, often times short sales will have some maintenance issues.

4. Selling a house through a short sale is something that will appear on the seller's credit report. It will likely impact their ability to purchase another house for 2-3 years, which is less than a foreclosure which can hang around for up to 7 years.

5. Just because you offer full price on a short sale doesn't necessarily mean it will be automatically accepted.

Short sales can be frustrating for both buyer and seller because of the waiting game. You must have a strong stomach for the process, flexibility in your timing, and most of all patience. In the end, though, they can be great solutions for both buyer (there are great deals to be had) and seller (it's a good solution to avoiding a foreclosure).

If you have specific questions about buying or selling a short sale, feel free to contact me at 913-269-0900.