What Is a Short Sale Home and Who Benefits From One?
Posted by Garman Group on
If you’ve looked into buying or selling a home, you’ve likely seen the term short sale and gotten confused. Short sales have become a bit more common lately, and a lot of people are unsure of what it really means and if it’s actually beneficial for anyone.
What Exactly Is a Short Sale Anyway?
A short sale means an owner sells their home for less than what they owe on their mortgage. For example, you could buy a home and take out a $600,000 mortgage. Due to unforeseen circumstances, you may have to sell quickly yet still owe $500,000 on your mortgage. If the lender agrees to let you list your home on MLS for $400,000, we call this a short sale.
Why Would a Short Sale Happen?
Although it’s clear that this isn't the best idea for a seller to short sale their home, sometimes it’s unavoidable. Not being able to keep up on payments, running up excess debt, or having to move quickly are a few of reasons why someone may have to complete a short sale. In some cases, a short sale occurs to escape a foreclosure on the home.
Does Anyone Benefit From a Short Sale?
As we mentioned above, a short sale can help prevent an impending foreclosure on the home. So although the owner would be losing money in this type of transaction, it would be preferable to a foreclosure. Foreclosures cause a major dent in one’s credit score and you should avoid them at all costs. Although lenders will also lose money, they too would often rather see a short sale over a foreclosure.
Anyone buying a house listed as a short sale could possibly benefit, though, as the house is selling at a reduced price. In fact, they often go under market price. This depends on other factors, though. For instance, how well have the owners kept up the property and what else is going on in the housing market?
Real estate agents and anyone else involved in the legal process of buying or selling of a short sale home can potentially benefit as well. Short sales are often quick and easy transactions — as long as there are no other legal issues attached to the seller or the home.
What Else Do I Need to Know About a Short Sale?
Anyone considering short selling their home must think hard about if this is the right step for them. Unless a foreclosure is imminent, there may be other things you can do to escape the need for a short sale. If staying in the home is not an option, look into renting it until it’s a better time to sell. If making payments is becoming difficult, perhaps you could get another loan or find another income stream to finance it.
Remember that, at the end of the day, it’s the lender who makes the decision about a short sale.