What is a Short Sale?
A short sale is basically a property that sells for less than the balance owing on its mortgage. A short sale can be an underwater home (this is when the homeowner owes more than the house is worth), an apartment building or even vacant land. If there is a mortgage balance that is greater than the market value of the home, that property can be a short sale.
A Short Sale is a Privilege, Not a Right
Not every property qualifies as a potential short sale in a bank's eyes. Banks are under no obligation to approve a short sale. Banks will grant a short sale if the bank feels it is in the bank's best interest to approve the short sale.
It is in the banks best interest to approve the short sale if the bank will make more money through the short sale than a foreclosure. It is estimated that banks might save 25% to 30% on foreclosure costs to grant a short sale over a foreclosure, but some investor guidelines make it more profitable for the bank to foreclosure.
What is Necessary for a Short Sale?
Most short sale transactions are handled by real estate agents who specialize in short sales. There are 4 essential ingredients to a short sale; however, strategic short sales, those without a hardship, are also possible. What makes a short sale work are the following:
- An underwater home
- A willing short sale bank
- A seller with a hardship
- A buyer willing to purchase the home
What Role Do Real Estate Agents Play In A Short Sale?
Some real estate agents throw homes on the market that will never close as a short sale. That's because the agents do not always qualify the short sale sellers. Some agents place unrealistic price tags on the short sale, which the bank will never accept. It is wise to choose an experienced short sale agent.
Here is what an agent does in a short sale:
- Determines the type of short sale. There are many types of short sales, from Fannie Mae HAFAS to regular, non-GSE HAFAs to a traditional short sale, and a few more in between.
- Gathers the required paperwork and submits the short sale package to the bank.
- Helps the seller to price the short sale home. The price needs to be attractive enough to entice a buyer to wait for short sale approval but high enough to satisfy the banks BPO (Brokers Price Opinion)
- Puts the home on the market. The agent must submit all offers received to the bank.
- Negotiates the short sale. Sometimes sellers will hire an attorney to do the short sale, but often the agent negotiates with the bank on behalf of the seller.
- Submits the short sale approval letter to the seller. Most sellers want a release of liability and no deficiency to do a short sale. State laws tend to govern the terms in the approval letters.
Sellers should always get legal and tax advice before completing a short sale.
The agents of Denise Torino Realty are short sale savvy and have experience in negotiating short sale deals with the banks. Call us today if you are thinking of selling or purchasing a short sale. Don't waste time with inexperienced agents. You will find that a large majority of the agents listing short sales on the market are not experienced and their deals don't close. The sellers and buyers end up wasting precious time waiting around to find out that their deal isn't going to close. Know your options and know them up front. Call us Today.