After the housing bubble burst, many of the homes on the market were short sales and foreclosures. While you used to be able to find great deals, those days are gone. Nowadays, while there are still some short sales and foreclosures to be found, they aren’t as good of a deal as they were right after the bubble burst since prices are now almost back up to the pre-bubble burst levels.
So what is a short sale?
A short sale is a situation where a homeowner owes more on their mortgage than the property can be sold for in the current market. For instance, if a homeowner owns $400,000 on their mortgage, but can only sell their house for $370,000 but need to move out of the property the seller has three options:
- Do a short sale. This means the seller stops making the payments on the home, gets a buyer to agree to buy the property for $370,000 then asks the bank to forgive the additional $30,000 they still owe on their mortgage loan by showing the bank they have a hardship and cannot pay back the $30,000.
- Sell the house for $370,000 and bring $30,000 cash to the closing table. Most people don’t have that kind of money to bring to the closing table, so they choose a short sale instead.
- Stop making the payments on the house and let the house go into foreclosure.
Here’s a great article with detailed information on short sales
A few important tips to know about short sales:
- Short sales can take up to a year to close from when you agree to a purchase price so plan to be very patient. The good news is that during this time period, if you find a house you like better you can walk away from the short sale.
- The purchase price you agree to pay may not end up being the final price. For instance, if the seller owes $400,000 on their mortgage and they agree to sell it to you for $370,000 the bank may not agree to the deal and want you as the buyer to pay $390,000 in order for them to approve the short sale. Therefore, you may end up being asked to pay $390,000 to get the deal done.
- Often times the seller will have two mortgages on their property. In this case, both banks have to agree to the short sale. With two banks involved, the chances of one bank saying no are higher.
