Purchasing a short-sale home can be an excellent way to stretch your home purchase budget. However, it can definitely make the home buying process longer and more complex. Here you will find the basics of short sales, including details about how a short sale works for the seller, to help you decide if pursuing a short sale is worth the extra time and effort.
What is a Short Sale?
Simply put, a short sale may be authorized by the mortgage lender when the current property value is lower than the outstanding balance owed on the mortgage.
For example, if a homeowner has an outstanding mortgage balance of $500,000 and the current market value of their home is $450,000, they would be short $50,000 – that’s where the term ‘short sale’ comes from.
For a short sale to happen, the lender must consent to the process and agree to accept less than the outstanding balance on the mortgage. Although this means the lender will lose money, they may sanction a short sale rather than go through the high costs and hassles of foreclosing on the property.
Regardless of what the home sells for, the homeowner doesn’t receive any money with a short sale.
How Does a Short-Sale Work for the Seller?
While each mortgage lender has its own short sale criteria, in general, lenders will consider allowing a short sale if:
- The home’s market value has dropped based on recently completed sales of comparable homes in the area.
- The home seller is close to defaulting on their mortgage, and they have no assets which can be used to cover their mortgage payments.
- The homeowner has experienced a hardship that prevents them from paying the difference between the mortgage balance and the market value, making it unlikely they will be able to continue making their mortgage payments in the future.
Examples of qualifying hardships include the onset of a disability or life-threatening illness, divorce, job loss, or death of one of the homeowners. Sellers need to attest that they have fallen on hard times in a hardship letter explaining their circumstances. This letter may need to be formatted as an affidavit along with documents to verify the facts. Don’t assume that the home seller is behind on their mortgage when they’ve listed their home as a short sale. Most short sale sellers have strong credit scores, and they’ve kept up with their mortgage payments; and by having a short sale rather than defaulting on their mortgage, they can prevent any damage to their credit rating.
Buying a Short Sale
Short Sale = Long Purchase Process
If you’re considering a short sale purchase, expect the process to take much longer than a traditional sale. It could possibly take up to a year from when you submit an offer to when you take possession of the home. Although it is possible for a short sale to close in as little as a few weeks, it’s essential to be realistic about the timeline involved with these types of transactions.
Unlike a conventional home buying purchase which involves negotiations between the buyers’ agent and the home sellers, in a short sale, the lender has the final say in whether or not an offer to purchase is accepted.
Making an Offer on a Short-Sale Home
As a homebuyer, once you’ve viewed a short-sale home you’d like to purchase, your agent will need to write up the offer to purchase which will be presented to the mortgage lender. This offer must include a comprehensive list of comparable sales, as the lender will want to ensure the home sells for a price close to market value.
Remember, the lender will be losing money on the transaction, and they want to minimize their losses. Banks typically agree to a short sale if they believe they’ll recoup more money than they would through the foreclosure process.
Once your agent has submitted your offer package to the bank, it can take up to 30 days for the bank to acknowledge receipt. The bank usually requests a broker price option, or BPO, a simplified appraisal completed by a real estate broker who works for the bank.
Suppose the BPO price is similar to your offer. In that case, the bank may ask all parties – you, your agent, the listing agent, and the homeowner – to sign an affidavit swearing that there is no pre-existing relationship or collusion involved in the transaction.
At this point, the lender will issue a document approving the short sale, and the purchase can be finalized.
Pros and Cons of Buying a Short Sale House
There are many pros and cons to consider when buying short-sale. On the one hand, you could secure a great home in a desirable neighborhood for a bargain price, and it’s a less-risky process than purchasing a foreclosure.
Looking for a Short Sale House in Las Vegas?
Below is a list of available short sale area homes. Please make sure to bookmark this page as the available properties will update daily. To schedule a private showing please call or text Courtney Kohler at 702-600-5996.
Curious to see what is available in bank-owned homes?
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Are you thinking about buying or selling in Las Vegas?
Whether you are looking for a short sale, a bank-owned home or anything in between, we got you!. We are local experts who’ve made real estate our business. We are here to help guide you through your home buying or selling experience. Contact Vivid Realty at 702-600-5996.