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Homebuyers looking for a great deal on a property purchase can get a price break on short sales - if they understand the short-sale process completely.
A short sale is when a homeowner sells their property for less than the value owed on their mortgage. In other words, the seller is "short" the money needed to repay the mortgage lender fully. Typically, the lender or bank agrees to a short sale to recover a portion of the mortgage loan owed to them.
For those who have been underwater for a while or fought with a loan modification, that's another story. There are several ways to lose a home, but signing away ownership in a way that destroys credit is one of the most difficult, and that's what foreclosures tend to offer. However, homeowners who can no longer afford to have mortgage payments currently are options to bankruptcy or foreclosure proceedings. One of those choices is a short sale.
Benefits of Short Sales to a Home Seller
If the home seller is presented with a short sale opportunity, it's a good idea to thoroughly vet all the choices on the table, and calculate the opportunities and risks and look at other relevant personal financial options before making a decision. Nobody says a short sale is an ideal solution to a home seller who has experienced a financial setback and owns a home where the mortgage exceeds the property's value - but it might be a great option.
Consider these advantages of a short sale:
- Credit Score Benefits
Short sales are highly preferable from a personal credit score point of view, particularly when weighed against any possible home foreclosure. Credit scoring companies take a dim view of foreclosure and will issue a credit score much lower than when a home seller shifts to a short sale instead. That not only protects the seller's score but it also retains them "in the game" and better able to buy another home under the road without the trouble of a significant foreclosure-induced credit score drop.
- Emotional Benefits
In many cases, a home mortgage is the biggest financial event of an individual's life - at least before retirement. The seller avoids a "worst-case scenario" of foreclosure and can genuinely say they sold their home and moved on with their life.
- Saving on Home Sale Fees
With a conventional home sale, the seller bears the burden of charges, including real estate agent commissions, which can be 3 to 6 percent of the total home sale. In a short sale, those fees and commissions are paid by the bank.
Benefits of Short Sales to a Home Buyer
Homebuyers can take good benefit of a short sale, as well, with several benefits:
- Reduced Price
Primarily, the significant benefit is the increased odds of making the home for a lower price, knowing that the house is on short sale mode and that the owners, and likely even the lender and bank in many cases, will want to sell the home and take out from under the home loan. As any realtor will say, a motivated seller is a seller who needs to cut a deal. Hence, a low-ball offer has a better chance of being accepted in a short sale than in a traditional home sale negotiation.
- Less Competition
Many homebuyers, particularly first-time buyers not used to the complexities of the process, may not want to get associated with a short sale. However, that opens up the field for homebuyers with more patience for a short sale, and who'll face less competition for the home.