Understanding a Real Estate Short Sale
A short sale is a common term in the workings of the stock market. If a particular investor thinks that a stock will go down in value, they will go through a short sale to make money if it does indeed go down. While less well known, the short sale is also a great tool for some real estate transactions, but the situation must be right for the buyer, seller, and bank involved.
The Bank
For a bank to decide that a short sale is the best outcome for a particular home loan, a few requirements must be met. First, the homeowner must be in significant financial distress which might prevent the owner from being able to pay off the home loan in full. Second, the foreclosure must be imminent on the property as only then will a short sale work.
What a bank agrees to is to accept a sum of money lower than what is owed on the property. The bank does this because the foreclosure process can be a long and arduous one that involves a lot of expense and time spent. If a buyer can be found for the property willing to pay at least most of the original loan amount in cash, that benefit can offset the loss of some portion of the loan amount.
The Buyer
A short sale can be an excellent investment opportunity for a buyer that is willing to go through the process of finding homes close to foreclosure, working with the bank on a potential short sale, convincing the homeowner that is a good idea, and ultimately making a cash offer to the bank on the property in question.
Finding these properties can be the most challenging part of the process but working with a real estate agent or doing searches on a local MLS database can turn up possible properties. In addition, the personal contact it often takes to convince a homeowner that a short sale is a good idea is sometimes a turn-off to a potential investor but without an investor, the transaction cannot take place. The bank needs the benefit of a cash offer to justify letting some of the loan amount go.
The Seller
In the end, it comes down to the ability of a homeowner to work with a potential investor on a short sale. A seller will most often be motivated by a desire to sell the home quickly for financial reasons. A short sale is a great way to pursue that goal as long as a willing investor can be found to make a cash offer on the property to the bank in order to avoid foreclosure proceedings.
As short sales have grown in popularity, websites have popped up that specialize in such transactions, prompting homeowners for information on their property that will then be shared with investors that have expressed an interest in short-sale potential properties. In addition, a real estate agent may be able to help you locate investors so that you can get out of your property quickly and out from under your bank as well.
For a short sale to come together, the buyer, seller, and bank need to converge on the transaction with a desire for it to happen. While that may seem like a difficult circumstance to arrange, the ability of a short sale to solve the problems held by all three parties can make it a much easier transaction to arrange.
If you are in a situation that you think might be helped by a short sale, contact a real estate agent or another expert for some advice on your particular situation. The short sale can be a great solution but is not applicable in every case. Make sure that your case is one that calls for a short sale before going down that path.