The year-over-year growth of real estate prices has started to take a downturn for the first time in a number of years. Where we saw growth of 10% last year, this year’s growth was only 7% and that number is likely to continue to trend downward as federal interest rates rise.
With the market beginning its transition from a seller’s market to a buyer’s market, the subject of short sales has started to crop up in many real estate circles.
What are short sales? Is it okay if I need to short sell my home? What sort of investment opportunities does the short sales process offer to investors?
For the uninitiated, short selling a home is when a homeowner sells their property for less than what they owe their lender.
In this article, our aim is to give you insight on the short sale process in 7 quick facts.
1. Short Sales Are Different Than Foreclosures
Foreclosures are the result of sellers falling behind on their mortgage payments and the bank forcing the sale of the house. Short sales are a lot less dire.
Short sales come as the result of homeowners needing to get away from their property during a down market, homeowners trying to work out deals with their bank to avoid foreclosure, and a few similar situations.
Furthermore, short selling your home does not damage your credit in the same way a foreclosure does.
With a foreclosure, you could be sitting with a black mark on your credit for up to a decade. With a short sale, you could get another home loan within a couple of years.
2. You’ll Need to Get Approval for a Short Sale
One of the stickiest parts of working through a short sale is getting approval from your lender. As we mentioned in this article’s intro, a short sale in real estate is when a homeowner sells their home for less than what they owe the bank.
That means that at the end of the sales process, the previous owner will still owe their lender a sum of money. Lender’s concern over the amount they’re going to lose is why banks get involved in the short sales process.
In order to get approved for a short sale, typically, you’ll need to prove a few things. These things could include proof of financial hardship and/or a major life change.
3. Bankruptcy Can Cause Issues with Short Sale Approval
If you’re considering going through the short sale process, chances are you have broad financial issues. These issues typically encompass a number of outstanding debts that come in addition to what you owe on your home.
Since bankruptcy prevents debtors from collecting money from you and short selling your home is technically a form of debt collection, it can sully the process.
Talk to your bank or a third party financial advisor prior to declaring bankruptcy whilst pursuing a short sale.
4. Bringing on a Real Estate Agent Can Be Helpful
Selling your home via a short sale is a lot more involved than selling your home via a standard for-profit sale. There is a lot of additional paperwork involved that can be harrowing to deal with if you’re not a real estate expert.
That’s why it’s important to consider bringing on a real estate agent to assist you with your short sale. While agents are an additional expense that can put you at an even deeper deficit with your bank, the expediency and possible higher sale price that they can bring to your home are often worth their fee.
5. The Short Sales Process Is Long
A lot of people read the term short sale and assume that the period of time it takes to sell a home though it is short.
Makes sense, right? Not only is “short” included in the title but it stands to reason that selling your house at a cut-rate in a down market would entice buyers to make offers quickly.
Unfortunately, the speed of short sales doesn’t live up to its name. As a matter of fact, it’s not uncommon for short sales to take as long as 9 months to be completed.
This is largely due to the level of involvement your lender will have in approving buyers and making demands which can seriously hamper down your sales process.
6. Buyers Beware when Buying Short Sales
Given lender’s heavy-handed approach to short sales, only a quarter of short sales actually close.
That means that 75% of buyers making offers on short sale homes leave disappointed. Most offers fall through because of how long they take to get approval.
If you’re a buyer looking to score on a short sale, don’t be in a rush to get into your new property.
7. Investors Flush with Cash Love Short Sales
Short sales are homes sold out of desperation. A desperate seller often means a very happy buyer.
If you’re ready to make a cash offer on a short sale home, you’ll get a lot of attention from sellers and their banks which could expedite the amount of time it takes for you to get your purchase approved.
Once you have a new piece of property in your portfolio, you can sit on it until the market turns back up (or even sooner if you’re lucky) and turn a considerable profit!
Wrapping Up Things You Never Knew About the Short Sales Process
The short sales process is typically arduous and filled with pitfalls. That being said, it’s preferable to foreclosures and presents an outstanding opportunity for the patient buyer or cash-rich investor.
We hope that our 7 facts above have helped you better understand short sales.
If you’d like more information on short sales, real estate, and more, check our additional content on Short Sale Blog today!