What is a Short Sale in Real Estate? Everything You Need to Know
Buying
In the world of real estate, “short sale” is a buzzword that we hear more and more often. But what does it mean? While many buyers and sellers think they understand the concept of a short sale in real estate, the actual definition is often much more elusive than people think. Read on to learn more.
What is a Short Sale in Real Estate?
To put it simply, a short sale is a sale in which the proceeds from the sale of the home, property, or building do not add up to the level of debt owed in liens against the property. Within a short sale, a lien holder makes a deal with the bank or seller to accept less money than what the debt would dictate and the sale takes place.
Because short sale results in lenders losing money on properties, they’re only undertaken when a lender and borrower agree that it is preferable to sell the property and cope with a financial loss than it is to default on a mortgage or property loan. By choosing the option of a short sale during times of extreme financial need, the borrower of the loan can avoid going into foreclosure.
What Short Sales in Real Estate Look Like for Borrowers
In many circles, short sales are a last attempt at salvaging a credit report and making a fresh start. While it’s true that a short sale doesn’t damage a borrower’s credit report as much as going into full foreclosure, it’s still viewed negatively by outside lending agencies.
What’s more, a borrower can’t simply decide to undertake a short sale. Instead, the lending organization has to approve the deal, which leaves borrowers subject to their preferences and whims.
The Benefits and Drawbacks of Buying a Short Sale
Some property buyers seek out short sale properties because they are less expensive than they would otherwise be. There are, however, several drawbacks to this practice. In addition to the fact that short sales often require a considerable amount of negotiation and back-and-forth, they also necessitate that the buyer purchases the home “as is,” with no room for improvements. If the purchaser wants an inspection or repair completed within the sale, this is not something the lender will pay for. Instead, the costs will fall directly to the buyer.
While short sales are a common occurrence in the real estate market, they’re not widely understood. By knowing the ins and outs of a short sale in real estate, sellers and buyers can be better informed and better prepared to navigate the challenges of the housing market.
