Real Estate Short Sales a Boon to Buyers, Sellers, and Lenders
Ever since the mortgage meltdown that started in 2008, short sales have become commonplace, and many real estate agents, creditors and banks have become very adept at dealing with them and in streamlining the process. A Short sale occurs when someone sells their home because they can no longer pay the mortgage, but the home isn’t worth as much as the liens against it. The sale will not completely cover the outstanding mortgage and the bank (lender) agrees to absorb the loss and forgive the debt.
Benefits to Sellers
Memories are made in the home, and many people feel bad that they need to give up a place that they put so much time and money into.
While it is definitely traumatic to loose a house because of financial hardship, in most cases, the positives outweigh the negatives. Right away, the owners mortgage payments are now suspended and they no longer have the overwhelming pressure of a monthly payment hanging over their head. Additionally when the Bank approves the sale, depending on the geographical area, they will agree to pay a monthly fee to the owners for keeping the property in prime condition. In some states, you may need to pay the deficit (depending on the agreement with the bank), but you don’t need to pay nearly as much. Additionally, in many cases at the conclusion of the sale, the bank will pay the Owner a relocation fee based on the current value of the property.
A short sale also isn’t as damaging from a credit standpoint when compared to foreclosure. It’s true that some underwriters and other big lenders may disqualify you from getting larger loans, but there is often much less damage to your credit in the long run than if you went to foreclosure.
You will also be eligible to buy a new home much sooner than if you went through foreclosure. According to the Fannie Mae rules, lenders will not give you a loan for 5-7 years if you have a foreclosure. But with a bank approved short sale you will be eligible for a new loan in only two years.
The last major benefit is that you avoid the social stigma of foreclosure. Most people feel that a foreclosure makes you low-class and irresponsible, though that’s rarely the case. A short sale doesn’t carry this same stigma, so it’s much easier to return to normal life when your financial situation stabilizes.
Benefits to Buyers
If you are looking for a home, and you want a real bargain, then definitely investigate this type of sale. In today’s market, you can purchase these properties at bargain basement prices for as much as ten percent under the current market value. As the property appreciates, you have built in equity.
Typical bank owned (REO), foreclosure homes are usually in very bad physical condition and are often sold derelict and abandoned. Many of these properties are stripped bare by the former owners. But if the property is sold via a short sale the home is sold by the owners who still live in and care for the property.
The lender is also motivated to sell the home quickly because if the owner is not making the payments, the bank is losing money. If the house is worth less than the loan, the owner has no motivation to keep making payments. The faster it’s sold, the less money that is being wasted. This allows the buyer to negotiate and reach a final price much quicker than you would if you bought the home in a traditional sale.
The last benefit, and this depends on the state, is that you will not have to pay the agent’s commission. Whenever you buy a home, you need to pay the real estate agent’s commissions of approximately six percent of the final sales price. This can push the price up significantly, but you can avoid that since the lender will pay the commission to the broker directly. This makes it easier for them to sell the home, and it means that you have to pay less for the property.
Benefits to Agents
There are also numerous advantages to real estate agents, whether they are selling the home for a lender, or if they are advising the owner with their dealings with the bank. The first benefit is that the lender pays the agent directly. Being paid by a lender is usually faster and less complicated when compared to a standard sale. Lenders also understand the importance of paying the agent, so they typically have a set fee so the agent knows ahead of time exactly how much commission they can expect from the sale.
Additionally, agents get signage whether the house sells or not. Agents are independent contractors and they need publicity. When people see the sign, they might consider hiring the agent to find or sell a home. With the current boon of activity in this market this can mean a tremendous amount of free exposure for the agents and brokers.
Short sales are a relatively new solution for sellers who are “underwater” with their mortgage obligations. It allows lenders to minimize their losses with under performing loans while avoiding the expense of foreclosure and maintaining an unwanted property. For sellers it’s a much better alternative to a foreclosure because its not as damaging to their credit history and they retain some dignity after leaving the home. Additionally they will be able to qualify for a new loan in only two years which gives them time to even out their financial situation. This type of sale is also good for buyers and agents because they can purchase great homes for less. It also benefits Real Estate agents because they can make money in an heretofore untapped market and have gain extra publicity through the increased signage.