Short Sales

A short sale occurs when the seller owes more on their property than they can sell it for and so asks the bank to accept less than what the seller owes. The process of selling a home via short sale contains many complications and contract issues, and can be stressful for both the seller and buyer of the property.

With all of that said, they can also represent an excellent value - but not all the time and not for all people. To buy or sell a short sale, you need to have time, if fact they should really be called long sales given the amount of time it can take to close the transaction. Depending upon where you are in the bank cycle (is it an approved short sale etc.), they can take 3-4 months to close, but can also take as long as 9-12 months.

Short sales become common in a declining market, where home prices fall in value and sellers can no long meet their mortgage payments. In these circumstances it is easier and often cheaper for the bank to accept a short sale, rather than take the home into foreclosure and then have the expense and work of having to sell the property themselves.

One thing I must point out is that each lender goes about the short sale process in a different way and some take longer than others. There are really two ways you can initiate the short sale process, one is to try contacting the bank fill out the paperwork and get the short sale preapproved before it is listed for sale. The other way is to place your home on the market and when you receive an offer, present that to the bank and initiate the short sale approval process at that stage. Given than banks are currently overwhelmed with short sales, most currently will not even consider a short sale until the home has received an offer. 

If order to get approval for a short sale, you must work with the banks loss-mitigation department, and complete some financial forms to prove that you are meet their requirements for a short sale. Once the paperwork has been submitted you wait, in fact you can be waiting several months before you hear anything. If a short sale is approved the bank will assign a negotiator, who will order an appraisal. Once the appraisal has been completed the lender will be in a position to accept or reject any offers for the home.

Because the bank is the party taking the loss, there are also some implications for the real estate contract. A short sale is a sale between a buyer and a seller that is contingent upon the banks approval. Because the short sale process is often initiated after an offer has been made on a property, a common tactic is to price the home so low that it will receive multiple offers. The bank may accept one of these offers, counter, or may go back to the buyers and tell everyone to provide their best offer. Remembering that this process may have taken several months, the chances are there will be some very disappointed buyers, who will now have to start the process all over again.