What is a short sale?

On Behalf of | Jun 5, 2024 | Real Estate

A short sale occurs when a homeowner can’t keep up with their mortgage payments and wants to sell their home for less than the balance on their mortgage. In order for this to happen, they generally have to get the mortgage company to agree to the short sale.

While mortgage companies are sometimes leery of short sales, they’re often more likely to agree when the housing market is down and the alternative of foreclosing would be costly for them. Agreeing to a short sale is sometimes preferable to having to pursue a foreclosure against the current homeowner.

Trying to find a buyer

Once the lender approves the short sale process, the homeowner can list the property with a real estate agent familiar with short sales. The agent will market the property and seek potential buyers.

It’s important for homeowners to understand that finding a buyer willing to purchase the property at a price acceptable to the lender can take time. The offer must then be submitted to the lender for approval, as the lender has the final say on whether the sale price is acceptable.

Working out the short sale terms

After receiving an offer, the homeowner’s real estate agent will present it to the lender for review. The lender will conduct a thorough evaluation, including a comparative market analysis and possibly an independent appraisal, to determine if the offer is fair.

This step can be lengthy, as lenders review the homeowner’s financial documents, the property’s market value, and the buyer’s offer. Homeowners should be prepared for negotiations and possible counteroffers from the lender during this phase.

One of the primary benefits of a short sale is avoiding foreclosure, which can be particularly damaging to a homeowner’s credit and future financial stability. A short sale allows a homeowner to walk away from the property with a sense of closure. It’s critical that they understand how the process will impact them now and in the future, and they must ensure they protect their rights throughout the process.