What is a Short Sale, anyway?

"Short Sale" is a real estate term you may have started hearing in the past year or so, but most people still don't know what it is unless they have had reason to be involved in one.

In a nutshell, a Short Sale occurs when a homeowner owes the bank more than their home is currently worth in the open market. This can happen when the real estate market experiences a sudden reversal from a seller's market to a buyer's market, such as we have seen recently. Perhaps the buyer's purchased their home at the height of the market and don't have enough equity built up to cover recent reductions in home values. Or the homebuyer may have borrowed against the equity in their home to the extent that they now owe more than it's worth. In either case, if the homeowner cannot wait until the market turns around again to sell their home, there will be a gap between the amount they owe the bank and the amount a buyer will pay. If the bank agrees to accept the lesser amount and forgive the difference, it is known as a Short Sale.

In exchange for this leniency, the bank requires that they play a major role in the home sale. They (the bank) must qualify and approve any purchase offers as well as the selling price. This slows down the selling process significantly, because the bank isn't bound by the same timelines that individual sellers usually follow. A buyer (and the seller) may have to wait several months (typically a minimum of 60 days) for the bank to approve the purchase price offer.

A Short Sale is usually a precurser to foreclosure, where the bank simply takes possession of the home for non-payment of the mortgage.

If you'd like more information, please contact me at your convenience. 206-708-9800.