We get asked quite a bit on short sales and what exactly do they mean. Basically, a short sale just means that the homeowner owes more money than what the property is worth. Short sales are also used as an alternative to a foreclosure which is when a property becomes bank-owned.
Are you deciding if a short sale is the right way to go for you? There are a few things you need to keep in mind before doing so:
1. Unknown timeline – short sales can take a couple months to over a year!
2. List price means NOTHING. Buyers think "oh this is a great deal". On one of our past deals we had some clients in New Lenox go in at FULL ASKING on a short sale at $269,900 and the bank after 4 months countered back at $290k bottom line. The buyers did end up accepting the $290k which was still a good deal and the house actually appraised for much higher, like $325k! But basically the listing agent who lists the property just keeps reducing the list price to get an offer and that price doesn't mean the bank will allow the short sale at that price.
3. Sellers can stop cooperating with the bank. Sellers basically have to provide bank statements every month and pay stubs every 2 months and all kinds of info to the bank doing the short sale. We had one family 6 months into a short sale waiting on approval any day and the sellers one day decided to stop cooperating with the bank and the family was back to square one without a house.
4. The bank may not approve a short sale - we could potentially wait 6 months or more and the bank could come back and say they won't approve a short sale on the property so then we're back at square one (although I've never personally seen this happen, just heard other scenarios from other agents)
5. The biggest risk in our opinion right now is that a lender cannot lock your interest rate until the bank actually approves the short sale. This means you are gambling on what future rates may be. Say rates are around 4% when you are looking and rates jump up to 4.5% your affordability will decrease and you may no longer qualify for the property.
If you have any questions on short sales let us know. We would be happy in assisting you!