Should I sell in a short sale?
Why Sell Your House in a Short Sale?
What is a Short Sale? A short sale occurs whenever the proceeds from the home sale (Sales price – Cost of sale) are not enough to pay off the mortgage or mortgages, and any liens. This could be a minor shortfall, a few thousand dollars, or it could be 10’s of thousands, even hundreds of thousands of dollars in some situations. If its a normal re-sale, the home sale proceeds are in the positive- the home seller takes cash with them on the way out. You can see more of the details here at Wikipedia
Why do short sales happen? It is a combination of falling home prices, low down payments, mixed with folks losing their jobs or having their mortgage adjust to a payment too high… some or all of these, or, in some cases the value loss has been so high, maybe Sellers are just giving up on the house.
Whatever the reason, the Buyers can’t pay the mortgage, and it might be in the bank’s best interest to proceed with a Short sale that might cost them 15-25%, as opposed to a foreclosure that averages 24-26% and occasionally is much worse.
To the home Seller- borrower, a short sale is vastly preferable to a foreclosure, the damage to credit in a short sale is only a fraction of the damage of a foreclosure.
Home sellers must write a letter of hardship, submit full financial s and then get an offer to submit to the 
- Change- Think it through without fear
bank. Once an offer is received- along with the Seller’s package, and a proforma HUD statement displaying full costs to the Bank, the package is then submitted to the bank’s loss mitigator’s for review.
If the borrower is approved for the Short sale, the bank sends other real estate brokers to perform a BPO- Broker Price Opinion, or a mini-appraisal, that provides the lender current market value and allows the bank to make a decision.
Generally, if the offer is within 15-18% of a quick sale BPO price, the offer is accepted by the bank.
Expect plenty of forms, and hoops to jump through- they are after all a bank.
This is the general path banks take, but in practice many banks do this differently, a few are efficient and many are not. Larger banks usually take longer. If there is PMI on the loan, decisions take longer. If there is more than one note, it is even more complicated. Each note holder has different and often opposing interests and this complicates a short sale enormously.
Buyers should not expect an answer to their offer for 30-45- days, if there is more than one note, or PMI, times 2, and closings are at least 60-75 days away, and frequently120 or more.
Why Are Agents Reluctant to Pursue a Short Sale?
Simple- they are on unfamiliar territory. They have heard horror stories (I have too) they have been frustrated in the past,(I have too) they may have submitted an offer to the black hole that is Bank of America- enough to frustrate anyone. Basically they are afraid of the unknown, and want the easier typical re-sale. But ifyou are Buyer, theat “easier” doesn’t help you. If a Buyer doesn’t have to move right away, they need to be considering short sales, that’s where great deals happen.
What Steps Should I take if I am Interested in buying or selling in a Short Sale?
First things first, find a broker experienced in Short sales.Experience in short sales and strategies to both buy and sell are still very new. On the Sale side, what is the banks position on home pricing? Will the Sellers liabilities be discharged in full, or not? Are the Sellers committed to move- Sellers can’t simultaneously pursue a mortgage modification or adjustment.
We currently are helping several home sellers find a short sale buyer. Buyers won’t be able to have repairs done, so look it over well or have it inspected before making that offer. Consider a 3rd party warranty company if the home is older. Do make that inspection- Sellers won’t do repairs but you may still be able to walk away, or know whats going on in the house. Most of all be patient… banks are non-emotional and will say yes or no, but they have a lot on their plate.
As you might have guessed, I’ve just scratched the surface of this subject. In the last year we’ve seen an increasing number – even in our more healthy real estate market. If you bought a home in 2006 or 2007, without a big down payment, and now have to sell, and don’t have the cash to cover the loss, you are most likely in a short sale situation. We can help.
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The McDonald Group is a full service brokerage partnership that offers hi-quality Buyer and Seller Representation to home buyers and sellers throughout the greater Charlotte area. Call Terry direct at 704-351-1519 to get started.
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