Buyers that see the words "short sale" on advertisements can be forgiven for misunderstanding the meaning. A short sale is not about a promise to close quickly on a home sale but has more to do with the way the price is set. Read on and find out what buyers should know about this type of real estate matter.
When Too Much is Owed
Some sellers are saddled with a home value that has not kept up with the equity. Any time a home's value is less than what is owed on the mortgage, a short sale situation can exist. A lot of the time, short sales result from buyers who purchased a home and took out a mortgage based on inflated home values. When they get ready to sell the home, they are stuck with a large mortgage balance higher than the appraised value of the home. From a buyers' viewpoint, a short sale home is not necessarily a bad deal as long as they understand what they are buying and how to deal with the financing issues.
Understand Why It's a Short Sale
The reason for the mortgage balance being higher than the home's value is a key fact to know. It might be because the neighborhood has declined and that should be of prime interest to a buyer. For example, you might want to find out if all the homes in the neighborhood are declining and why. Some common issues include bad schools, environmental issues, too many homes for sale at one time, noise issues, and more.
How to Deal With Home Short Sales
To make a short sale work, in most cases, the lender has to play along. That means that they are willing to accept a price for the home that puts it in line with the value. Mortgage lenders never lend money on a property that is appraised at less than the mortgage needed to pay off the current loan. If the home's price cannot be lowered, there is one more option.
The Home is a Good Value
Today's real estate market is robust and desirable homes can be snatched up quickly. If the home is in a great area and the "comps" are good, buyers might still consider a short sale home. Comps are the comparable prices on homes in the area that have sold recently. While high comps on other homes might influence a buyer, it does nothing to help pay off the existing too-large mortgage. Buyers who want to buy such a home have to be prepared to pay the difference to the lender. That might mean a higher down-payment to "pay down" the loan's balance.
Short sales can be complex but worth it for some buyers. Be sure to speak to a realtor who understands short sales and can advise you about the reasons for the short sale and how to make the deal work.