A lot of talk is heard about "Short Sales" in real estate these days.
What does it mean?
A
short sale is a real estate transaction where the seller owes more on
their home than it is worth in the current market. The seller has become "upside down" in what
they owe versus the equity they have in the house. The prospective
buyer makes an offer that is less than the seller owes on their
mortgage. The seller accepts the offer and sends it to the bank to await
a decision. It is then up to the bank as a "third party" to determine
if they are willing to take that much of a "short" or loss on the sale.
Why would people get involved in a short sale?
In some cases short sale transactions can create a win, win, win situation.
Sellers
are usually alleviated of a building debt. They can get on with their
life and rebuild their credit faster than if they had gone through a
foreclosure.
Buyers are looking to get a better deal than current market value.
Banks
are looking to be in a range of "fair market value", but banks are also
getting rid of a "troubled asset" without the added costs of going
through a foreclosure and auction, consequently banks are willing to
take a loss on the property.
It sounds good what are the drawbacks?
There are many potential pit falls to short sales.
Time-
Short sales take a long time to process. For most buying a house is a
very emotional endeavor, waiting 3-6 months or more for the bank to make a
decision may not be worth the savings. The truth is banks have been
overwhelmed by the number of short sales.
They are not anxious to write off to many losses in one tax year. While
some banks have become a bit more streamlined in processing short sales,
never could the help of a qualified broker be more important to guide
you through the process.
Inspection timing and costs- Not every
house is as good a deal as it looks. In some cases home owners that
could not afford mortgages also were forced to delay maintenance and
upkeep. Short Sales tend to be "As is" sales. Buyers are still allowed
inspections, but if inspections detect problems with the property, in
most cases neither the seller, nor the bank will pay additionally to the
losses they have already accumulated. In this case the Buyer may opt
out of the sale, but inspection fees and time are lost. Timing of
inspections is also critical. While most transactions have inspections
beginning shortly after acceptance of an offer, with short sales
inspections usually should not be scheduled until all creditors with liens have
approved the transaction.
Seconds and home equity lines of
credit- If Sellers had second or third mortgages, or extended lines of
credit, the sale must be approved by all creditors with liens on the
property. These homes can have severe equity disparity and can be doomed
to failure from the beginning.
That does not sound so good, Why would a buyer or seller get in a deal like that?
Here
again, the advice of a qualified broker becomes invaluable to buyers
and sellers. For buyers some short sales have bank approved asking
prices which means far less waiting. Investment buyers do not tend to be
as emotionally attached to the home buying process, so waiting can work
for them. Some people are far more qualified to do their own repairs
and remodeling, keeping costs down, and value up. While sellers do not
seem to have as many pluses on their side of the short sale, in most
cases they are being forgiven a debt they took on. There is also often a
period of time when the seller does is not able to pay their mortgage, but retains
possession of the home. This may give the seller a chance to rebuild a
very small nest egg of money so they can get on with their lives.
If you would like more information or a list of available short sales in Eugene, Springfield or greater Lane County, contact us today!
|