What is a short sale?
This is a question asked often on listing appointments and when working with Buyers. While anyone in the Real Estate/Finance industries understands, we find about 4 out of 5 people don't know what a short sale is.
Short Sale - When a person owes more on their house than it can be sold for, they are going to sell it "short" of what the mortgage is. This is a Short Sale.
For example, they paid $340,000 and owe $330,000. Values have declined 15+% in our area in the last two years. The house is valued around $289,000. They will be selling $41,000 short of what is owed on the house, plus their fees to sell.
Buyers who want to take advantage of short sale prices must be willing to wait a month or more for an answer and another month or two to negotiate and close. The Seller will sign the contract, but third party approval is necessary. It is important to work with an agent who is experienced in this type of transaction. Banks have a different way of negotiating a contract, and very specific guidelines must be followed.
There are two types of short sales -
1. The owner is making the payments.
2. They are behind or have quit making payments. If they have quit making payments, the house will go into pre-foreclosure. When a house is in pre-foreclosure, there is a timeline as to when it will have to sell or be foreclosed. This varies from state to state but in FL, it is a lengthy process.
WHAT THIS MEANS TO A SELLER:
If you can sell the house as a short sale before it is foreclosed, then you will have a negative entry on your credit for about 2 years. If you choose to let the house go into foreclosure, there will be a negative impact on your credit for 4-5 years.
Some people think bankruptcy is the way to go, but be aware that it will remain on your credit report 7-10 years.
A Seller can opt to pay the difference between what is owed on the mortgage and the sales price. This is the best route if the Seller is financially able, as there will be no negative effects on the credit score and they can take advantage of today's low rates and great prices to purchase another home. In other words, what they lose on the sale of their house, they will make up on their new purchase.
Here is an example from a Seller who bought a new home and actually brought some money to the closing table.
$285,000 Original List Price
-$239,000 Actual Sales Price (82% original price)
$ 46,000 net loss on sale
Look what happened:
$620,000 Contract price including upgrades
-$570,000 Appraisal comes in lower than Contract
$ 50,000 savings
$ 15,000 extra closing costs builder agrees to pay
$65,000 savings on house purchase
-$46,000 less net on sale of house
$19,000 gain to Seller on Purchase of new home
WHAT THIS MEANS TO A BUYER:
Short sales + low interest rates mean some of the best values in years. Interest rates are the best in 30 years. Buyers who were priced out of the market can now make some astounding purchases.
If you are thinking of buying a home in the next year, now is a great time. No one knows how long the rates will remain this low. Let us know how we can help you. We are experienced in the Selling and Buying of Short Sale properties. We know how to get them closed.
**VERY IMPORTANT NOTE - Please be sure you work with a real estate agent experienced in short sales. Ask them how many they have done and if it's a listing whether they have listed any and if you are a buyer whether they have worked with any buyers.**
Thanks to Bill Gassett for reminding me to clarify this.
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Want to know more about Short Sales and Foreclosures in Clay County? Email me at sharon@teamalters.com
Text or call 904-673-2308
Visit our website at www.teamalters.com for all Clay CountyShort Sales and Foreclosed homes.