Short sales in real estate are sales in which the proceeds from the sales fall short of the balance owed on the property’s mortgage. The lender agrees to accept less than the total amount due. Short sales are growing increasingly common with today’s economic conditions as an alternative to bankruptcy or foreclosure. However, the name “short” sale can be deceptive as very few close in less than 30 days, and many sellers wait as many as 6 months, so as far as time goes, the sale is definitely not short and can actually be quite long. Also, short sales in Real Estate are different than short selling that many stock and equity traders are familiar with, where a trader bets against an equity by selling it before buying it in hopes of buying it back at a later date for a lower price, and thus profiting from the differences in prices.
Short sales can in some cases be really good deals for buyers. However, in a lot of situations this is not the case. Here are a five reasons why you might want to reconsider buying a short sale.
1.The seller may have just paid too much for the house in an inflated market, or the house may have been over-mortgaged. You may still end up paying too high for the property.
2.The home may actually be selling at market value because the lender believes he can get a better price on a short sale than a foreclosure. If you were to wait for the property to go into foreclosure you will likely get a better deal.
3.The home will probably sell “as is”, meaning neither the seller nor buyer will pay for any extra repairs.
4.It often takes much longer than average to close on a short sale.
5.The burden of closing costs will typically fall on the buyer. This can end up costing you more than you would have saved on the deal.
From a financial standpoint, the person who benefits most from a short sale is usually the seller. Most mortgage lenders are now more willing to accept short sales because of the overwhelming losses they are experiencing with the current foreclosure crisis. This is good news for borrowers who are in over their heads and owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure. And while a short sale does negatively affect the seller’s credit report, the impact is almost always less than that of a foreclosure. Short sales remain on a credit report for seven years, but it is typically possible to obtain another mortgage 1-3 years after the sale, depending on other credit information.
Chris is an editor for Inside Real Estate, an online community of real estate agents sharing their expertise on the real estate industry.
[tags]real estate, foreclosure, foreclosures, short sale, short sales[/tags]
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