Have you ever wondered that what is a ‘short sale’ in real estate?
A short sale in real estate is when a homeowner needs to put up their home for sale, but they are short the money required to pay the mortgage and the fee involved with selling like title, property dealer commissions, etc.
In order for readers to fully grasp the concept of short sales in real estate, Graana.com, Pakistan’s smartest property portal has come up with an informative blog on it.
Pros and Cons of a Short Sale in Real Estate
Following are some of the pros and cons of short sales in real estate.
Pros of Short Sale in Real Estate
- A short sale is a way through which you can sell your property at a rate much less than the price the owner is in debt with on the mortgage.
- A short sale is a clean method to get rid of your mortgage debt, also in a number of cases the lender forgives the difference between the mortgage amount and the selling price. To understand this concept, you need to get familiar with the types of mortgage and mortgage housing in Pakistan.
- Your credit score will be less damaged by the short sale as compared to a foreclosure. Hence, you will be able to purchase again sooner than in case of foreclosure.
- People who often buy and sell houses, find short sales a good choice. The reason is that they mostly propose a big price cut. On the contrary, banks will possibly take less money than you owe them on your house when you possess more on it than its actual value. Therefore, people don’t go through an expensive and lengthy foreclosure process.
Cons of Short Sale in Real Estate
Now that we have discussed the advantages of short sales in real estate, let’s also talk about some of its downsides.
- Approval of a short sale can take a lot of time, which is why it may not be the best choice for people who want to need to buy a property on an urgent basis.
- In a typical property sale, the only one who has to approve the sale is the person who owns the property. In a short sale, this is not the case. The current owner is not the only one who must accept the offer.
- If the property is being sold the normal way, only the homeowner’s approval is needed to sell. However, in the case of a short sale, the owner can not solely decide to proceed with the selling process.
- In some cases, the lender backs off even after approving the property of the seller, so there is no guarantee that the lender will always accept your offer after approval.
- There is another potential drawback of short sales in real estate. While you are busy making negotiations with clients, there is a chance that you could fail a better opportunity.
- People that go for selling their real estate through a short sale are usually short of money, which is why they are bound to sell theirs as it is unlike other sellers who get a chance to stage their property before selling.
- Not everyone qualifies for a short sale, they have to get approval from a bank or mortgage lender before selling their property via short sale. However a lot of people advertise their property for a short sale before getting this approval, hence it is necessary to make sure that the property you are going to buy is approved for a short sale.
The Short Sale Process
Following are the steps that you will have to follow to make a short sale.
Convince the Lender
Before initiating the procedure, struggling homeowners should contemplate the probability of a lender agreeing to work with them for the short sale. There is no obligation on lenders to cooperate.
Your financial trouble should be because of a new thing for example a health issue, sudden loss of job, or a divorce. Moreover, the homeowner is supposed to be honest with the lender. The lender will not show sympathy to a swindling borrower.
Stop Purchasing Unnecessarily
To put yourself in a more convincing position, stop purchasing unnecessary stuff. This will make your proposal look more convincing to the lender.
In addition, beware of other factors that might cause a hindrance in the approval of your short sale proposal. In case you have not defaulted on a mortgage yet, the lender will find it difficult to work with you on short sales.
It might give them the impression that they can get more money through foreclosing on your house than through a short sale.
If you think that you are in a situation where you can proceed further with the short sale, talk to the policy-makers at the bank. Don’t just talk to the customer service representatives, instead talk with the lender’s loss reduction department.
Although asking for professional help might cost you a lot of money, however, handling all these complex things all by yourself might put you in much bigger financial trouble. Seek professional assistance from a tax professional, real estate consultant, attorney, and property dealer.
As the sale of your home proceeds, you can pay the fee of each one of these professionals. These professionals frequently deal with short sale transactions, hence they can guide you better through the whole process.
Gather Your Documents and Find a Buyer
Gather all the required documents that will help you demonstrate your critical financial situation to the lender. It is the homeowner’s duty to come up with the proposal.
However, you need to keep in mind that the lender has to approve your short sale after they have received all the necessary details because the lender is the beneficiary of the returns. Your duty as a seller is to find a buyer for your house.
Submit Your Proposal to the Bank
Once you have found the buyer, and have completed all the necessary paperwork, you are all set to set forth your proposal and the buyer’s offer to the bank.
Together with the documents on your distressed financial status, your proposal must also have an attached privation letter elucidating the situations that are obstructing you from paying your mortgage. Write it with all honesty and try to make it as convincing as possible.
However, there is one thing that you need to be extra careful about, and that is giving your financial information to the lender. In case you deal with them regarding a short sale that is not successful, they might try to mooch you off through foreclosure proceedings.
In case you still have some amount of cash with you, you might be asked to use it for paying off the mortgage payments. This is where an experienced and professional attorney will come to you to let you direct the details.
Short sales may take more time than regular ones, because of the time lender may take before giving approval. Sometimes they fall through as well. The reason can be the buyer finding another property while waiting for an answer from you.
This was all about short sales. Hopefully, this answered your question, “what is a short sale in real estate?”
For more information, visit Graana blog.