What Is A Short Sale?

When home hunting, you many run across what is known as a short sale.

A short sale is a property that is being offered at a discounted price to buyers because the seller has fallen behind in their payments on the mortgage and they need to sell the property in a hurry before it is foreclosed on and sold at auction. The idea behind a short sale is that by offering the house at a lower price than it is valued, the seller will be able to sell their home quickly and use the money to pay off their mortgage, thereby avoiding the embarrassment and credit ding of foreclosure.

In some instances of a short sale the seller has already spoken to a representative of the bank and arranged a payoff that will satisfy the outstanding balance on the mortgage. The settlement arrangement can then be made smoothly once a buyer makes an offer that meets the sellers price with the bank. However this type of short sale is rare and many sellers have not settled on a prearranged price for their property with the bank. Instead the seller and their real estate agent conduct most short sales after a prospective buyer has submitted an offer and will have the seller get in touch with the bank to negotiate the settlement price that the bank will accept.

It is unfortunate that the process of negotiation can take up to six months to be approved by the bank. For homes that are listed as a short sale the bank will typically not even get involved with a negotiation until the first offer from a buyer has been received. When this is the case with newly listed short sales, the buyer should be aware that it can take months for an approval to take place and the seller retains the home the entire time without further consequence of penalty on their overdue mortgage.

Because no offers are accepted by the bank until the term of the short sale are met and a price approved by the bank for the seller, a house that is listed on the MLS database as a short sale will remain on the listing until the buyers offer is approved by the bank. In such cases the seller is still able to receive incoming offers and position themselves better to accept and forward the best and highest offers to the bank.

If you’re a buyer and are considering making an offer on a short sale listing, be prepared to be patient and willing to look at several other short sales as you wait for bank approval. By including a 15 day out clause after an offer to the bank is accepted the buyer will have the option of choosing between one or more homes if other short sales are approved within the same time period.

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