What is a short sale - Tampa Bay Real Estate
What is a Short Sale: Definition and explanation
A short sale is a transaction in which the seller sells their home for less than what they owe on it, and the lender agrees to let them keep what they have left over after paying off the mortgage debt.
Many short-sale properties often result from foreclosure or bankruptcy. The term "short" refers to the difference between what is owed on a mortgage and what can be sold for.
Short sales are usually not motivated by emotional reasons such as divorce or the death of an owner; instead, sellers want to avoid foreclosure and pursue other avenues like renting out their property that may provide more income in the long term and offset their mortgage payment.
In some cases, lenders will agree to a short sale if there's equity in the property that's worth more than what is owed on it.
The Short Sale Process For Sellers: 6 Steps
Although the steps in the short sale process have similarities to a traditional transaction, the process has become more complicated as the lender's participation has increased. The typical home purchase consists simply of transferring a buyer's equity as an alternative to settling on a purchase price. However, in a short sale the transactions take place by the lenders, so they can often get more complicated and expensive.
This section demonstrates the main difference between the short sale and the typical short sale.
Find your real estate agent.
Unless you are a full-time real estate agent, finding an experienced short-sale specialist can be difficult. However, the seller must find one before getting started on what is often a long and complicated process. In fact, your lender will require you to have one.
This may help those wondering what is a short sale to expedite the short sale process.
Short sales differ from typical transactions in many ways, but one of the most telling differences is what happens when there is no buyer.
The obvious first step in any sale is to find a buyer, but to make a short sale work you'll need what's called a "qualified" buyer. A qualified buyer is one who has been pre-approved for a mortgage loan by the mortgage lender and is willing to wait for the bank to approve the short sale.
Determine if you are eligible for a short sale.
The first step for any seller looking to short sale their home is to determine if they are eligible. Eligibility for a short sale usually hinges on two factors: whether the seller is behind on their mortgage payments and the current market value of the property.
If the seller is behind on their mortgage payments, they are likely already. in the foreclosure process. In this case, the lender may be more willing to work with the seller on a short sale because it is cheaper for the bank to approve a short sale than to go through the entire foreclosure process.
Gather your documentation and have it ready to send to your lender.
When attempting to short sale a property, it is important for the seller to have all relevant paperwork ready to send to the lender as a short sale package. This includes documents that show the mortgage balance and mortgage payments, bank statements, and recent tax returns.
The more documentation the seller can provide, the easier it will be for the lender to process the short sale. Additional documentation may include a financial hardship letter explaining the inability to make the mortgage payments and an estimated home value report that can generally be provided by our real estate professional.
Short Sale Request - Get a Form to your lender.
A short sale form is a document that asks the lender to approve a short sale for a property. The form usually contains information about the remaining mortgage balance and the short sale property at hand. One indicator regarding the valuation is to determine that the seller has a negative cash flow.
A positive cash flow possibly leads to a decline in the short sale submission request.
Negotiate with your lender.
When negotiating a short sale, the lender is primarily interested in recovering as much of the remaining balance as possible. The short sale process will include the evaluation of the market value of the home to truly decide if it qualifies for a short sale property.
Move out and hand over the keys to the new buyer.
The buyer proceeds with their mortgage lender in getting lender approval like a regular traditional real estate transaction. Short sale transactions in real estate will typically have tight deadlines to complete.
Should I sell my home through a short sale?
Selling your home through a short sale is an option that may be worth considering if you can't afford to make the mortgage payments. Anticipating this financial distress before letting it happen is key to getting out of distress with little to no harm to your personal finance.
Short Sale Alternatives
One reason a seller might want to consider other options before proceeding with a short sale is to avoid foreclosure. A seller's credit score may become damaged on their credit report making it difficult to recover from. Here are some other options you can consider;
Sell the home through a traditional real estate transaction
A healthy housing market can be in the seller's favor where they can avoid losing the equity established.
Sell the home to a friend or family member
You can have potential buyers such as friends or family take over the financial obligations of the home.
Rent the home out
You may have a great home in a great location that can be easily rented out to other families that desire the location. Catch up with your mortgage payment and make as much money as you can collecting rent and watch the equity grow.
5 Buyer Tips For Navigating Short Sales
Housing markets can present a problem for buyers at times when there are a lack of options to choose from. This is when a short sale property can become a good deal for both the seller and buyer.
Always be prepared with your finances in order.
Having a solid pre-underwritten preapproval letter for a mortgage loan is a good idea when buying a short sale. A short sale property will typically have a deadline of approval once the seller has completed the short sale proposal with their lender.
Have an experienced real estate agent by your side.
An experienced buyer's agent is crucial in this process when you are dealing with deadline dates through the contract. Not having a real estate agent that knows what their doing can cost you your earnest money.
Educate yourself on the short sale process.
Reading this blog article is a start but making sure you have a great team of professionals is crucial to your success.
Remain patient throughout the process.
A short sale property doesn't always have the seller's llender'sapproval. You might have an available property you bid on that has yet to receive it. It can be weeks and even months before approval is obtained. Be patient.
Keep in mind that a short sale is not a guarantee of getting the home
Unexpected liens, judgments, and money owed to the HOA can be some of the reasons why your purchase is not successful. There is risk to every reward that you invest in.
Find a Short Sale Expert!
We all know how difficult it is to find good real estate agents. But if you want a short sale property, make sure that the person helping will be able to help with this type of transaction because there are no one-size-fits-all solutions when dealing with such delicate matters!
Ask them about their past experiences and see what kind of result they got from clients who sold homes through these methods as well - don't just take my word on without doing some research yourself first.