someone explain this to me...(real estate related)

AMJ6511

What exactly is a short sale? Does that mean pre-forclosure? It seems that every property H and I like is a short sale. Our real estate agent says they are a pain in the butt and such a long process. Anyone ever deal with one? Do the majority of them not work out? TIA! 

JSS1002

It is when the bank and the owner come to an agreement on a sale price that is less than the owner owes on the mortgage. The Owner takes a credit hit but can sell the house easier because they can price it lower. Usually the owner has to qualify by showing some sort of hardship. They keep paying their mortgage and are in good standing.

With a foreclosure, the owner has stopped paying mortgage and the bank repossesses the house and ultimately kicks them out. Much worse for the owners credit.

MKC12/22/2006

My friends got divorced and their house was a short sale. The bank was involved but so were they, unlike a foreclosure. Unfortunately the bank got to accept and decline offers. I don't know that they are any worse than foreclosures to deal with. I'd think in many cases the house could still be in better condition because the original owners are motivated to keep it nicer.

AMJ6511

Do they take longer to close than normal properties? Our agent keeps trying to steer us away from them, but a lot of them are very nice properties. 

JSS1002

Yes but I don't know why they take longer.

Jillibean68

AMJ6511:

Do they take longer to close than normal properties? Our agent keeps trying to steer us away from them, but a lot of them are very nice properties.nbsp;

They can, not always, but a lot of the time. The name is deceiving.

MKC12/22/2006

Yes they take longer because the bank is involved.

In my friend's situation, her now ex also prolonged the process. It was a sucky situation.

JSS1002

Jillibean68:

AMJ6511:

Do they take longer to close than normal properties? Our agent keeps trying to steer us away from them, but a lot of them are very nice properties.nbsp;

They can, not always, but a lot of the time. The name is deceiving.

Haha yeah "short" refers to the difference between what is owed on the mortgage and the sale price... Not the length of time.

gradbeth

as a clarification, the owners of a short sale property do not always continue to pay the mortgage.  So they are essentially living in their home for free.  For this reason they are totally unmotivated to sell.  We have seen a ton of these in our search.  Foreclosures can be a problem because they have been sitting vacant and falling apart for months. Short sales can be an issue because the people do not keep the house "show ready" they live there for free, why try to get a buyer? So you go in there and there's underwear on the ground (not clean) dirty dishes everywhere, a lot of clutter.  Very hard to sell a dirty house.  

The banks put up with this because it costs them less money to foreclose, kick them out, and then deal with the property months later when they are ready to sell.

And yes, they can take FOREVER (up to 6 months) to close 

AMJ6511

There is a house I like a lot that is a short sale, but I'm worried about the amount of time it will take to close. I know the "short" in short sale doesn't refer to length of closing, but it just sucks that they take longer to close. 

ChicagoBroad26

AMJ6511:

There is a house I like a lot that is a short sale, but I'm worried about the amount of time it will take to close. I know the "short" in short sale doesn't refer to length of closing, but it just sucks that they take longer to close. 

I'd go ahead and try for it anyway. I have friends who've bought through short sales and when it worked out, they've been able to get a better bang for their buck.  

kgs0505

I have heard that banks are trying to speed up the short sale process. So they are starting to get faster than they were in the past. Might be worth trying, but be prepared to wait a few weeks at least to hear from the bank.

MKC12/22/2006

gradbeth:

as a clarification, the owners of a short sale property do not always continue to pay the mortgage. nbsp;So they are essentially living in their home for free. nbsp;For this reason they are totally unmotivated to sell. nbsp;We have seen a ton of these in our search. nbsp;Foreclosures can be a problem because they have been sitting vacant and falling apart for months. Short sales can be an issue because the people do not keep the house "show ready" they live there for free, why try to get a buyer? So you go in there and there's underwear on the ground not clean dirty dishes everywhere, a lot of clutter. nbsp;Very hard to sell a dirty house. nbsp;The banks put up with this because it costs them less money to foreclose, kick them out, and then deal with the property months later when they are ready to sell.And yes, they can take FOREVER up to 6 months to closenbsp;

From what I understand, it's less of a credit hit than a foreclosure, so they might be more motivated to help sell their short sale house because of it. I know my friend was.

bethelon

Short sales can also be a result of a new construction home that the builder owns, has built, and hasn't sold yet.   My friend/boss had to find a new home within 48 hours due to his wife quickly becoming ill, and they went with a new construction short sale and, thankful to an amazing realtor and group of lawyers, they were able to find the house, go to settlement and start moving within 30 days before she could be released from the hospital.   So they aren't always bad situations and they can also happen pretty quickly given the right situation.

drtarajp

The home we purchased was a short sale. It was in great condition both inside and out. We really licked out because the entire process was only about 3 months. Our agent said it was the quickest short sale he had worked on. We weren't in a hurry to move, so It was worth the wait and we really got a wonderful deal on the home.

We found out who the lender/bank was that was running the short sale. Through some google searches, we came across some websites that give you the average time frame that lender takes for short sales. Some have reputations of quick sales, while others stretch them out forever. While the website was an estimate based off of people's experiences, it was helpful and right on the spot! Good luck!

BabyPerson

I also bought a short sale.  Took 4 months.  They aren't too bad if there is one mortgage on the house, but if there is second lien from a second bank - they tend to take really long.  So if the homeowner did an 80 20 split and financed the down payment, the second bank only gets a tiny amount.  These houses can be good deals but have to be market value or the owners bank won't approve.  So if the owner owes 800k on the house, first mortgage is say 600 and 2nd is 200, and house appraises for 610k, the first bank will take 600 and write a letter to the second bank saying you get 10k.  The second bank has to also agree to this deal.  If your lucky there is only one bank, so half the back and forth.  However, you can't then counteroffer for 590, the banks HAS to have what it appraises for.  They will likely give you 3% closing though.  Ours ended up being split between two banks, but the second bank was shady and never filed a lien.  So we hired a lawyer to review the file and got the house.  The owner doesn't really take a credit hit immediately.  The bank reserves the right to go after the owner for the difference, although I understand that they typically don't, but they are only agreeing to release the lien on the property.  

 

If you are patient, go for it.  But be prepared to threaten to and actually walk away if the bank is non responsive.   

ToAoShesha

We bought our house through a short sale and although it was an emotional roller coaster we got our house for a great deal and it only took 2 months!

Most realtors do not like short sales for many reasons: 1. they can take a long amount of time (although most banks are working on programs to make the process more quick). 2. It is a large amount of more paper work for the realtor. 3. The realtor does not make as much off short sales as normal sales.  Normally a realtor normally makes 3% of the selling price and off a short sale it is anywhere from 1.5%-3% which may detour them (more work for less money).

 At the end of the day the realtor works for you and if it is a house you really like, short sale or not go for it!

Millie1984

AMJ6511:

Do they take longer to close than normal properties? Our agent keeps trying to steer us away from them, but a lot of them are very nice properties. 

Yes, short sales take longer to close than normal properties.  Basically you are not negotiating with an individual seller, you are negotiating with a bank, and banks move very slowly these days.  

That being said, if there is a property you are in love with, and it is a short sale, go for it and see what happens.  On the plus side, you will get a great deal on it.