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What Is a Short Sale?

Thinking of short selling your home in Southwest Florida? Not sure, but just want to know more? Or looking for short sale homes on the market? Whether you’re in Marco Island, Naples, Bonita Springs, Estero, or Fort Myers – you’ve come to the right place. In this first article of our short sale home series we’ll be introducing the concept and going into some basic processes. And of course, if at anytime you have any questions, give us a call at: 239.494.6909 or contact us here – and we’re happy to provide no-obligation guidance.

What is a Short Sale?

At it’s core, a short sale very simple. It is a home on the market, for a purchase price that is less than the amount owed by its current owner. IE, someone purchased a home 5 years ago for $300,000. They’ve made payments getting the total mortgage down to $270,000 but have it on the market (and worked with their bank on approvals) for $250,000.

Why would someone do this? Well, there’s the obvious benefit to the homeowner – allowing them to get out from an illiquid investment without having to pay tens of thousands of dollars or more. Similarly, on the bank/mortgage company’s end – this process helps them avoid repossessing the home in foreclosure, which is expensive and time-consuming – often far more expensive and time consuming then working with their customers on a short sale (not to mention real estate transactions aren’t generally banks’ forte). Additionally, the seller avoids a credit hit that occurs in foreclosure as well as avoiding potential bankruptcy.

How a Short Sale Works

Are you worried your home’s value may not be as high as your current owed mortgage? Or need to move due to family, health, or job related issues? These scenarios and more, might mean you’re a great fit for a short sale. A short sale is a financial option that is sometimes available to homeowners who are upside down or distressed. They are behind on their mortgage payments and have a home that is underwater. Underwater generally refers to when the outstanding balance on your home is larger than the home’s appraised value.

In these kinds of scenarios (when a homeowner is behind on payments, and they’re underwater) there are really only two options: A short sale or foreclosure.

Experts disagree on whether short sales are a good deal. Proponents say that such homes are priced below market value. Opponents say that banks have no interest in doing fire sales. Short sales are typically initiated by the homeowner when the value of a home drops more than 20%. At that point the owner must work directly with, and negotiate with, their bank – getting approval before actually putting a short sale on the market. Additionally, the lender, typically a bank, needs documentation that explains why a short sale makes sense.

If approved for short sale, the buyer negotiates with the homeowner first and then seeks approval on the purchase from the bank second. It is important to note that no short sale may occur without lender approval.

Short sales tend to be lengthy and paperwork-intensive transactions, taking up to a full year to process. However, they are not as detrimental to a homeowner’s credit rating as a foreclosure is. A short sale looks better to future lenders and creditors. It shows that the person took action before the bank moved to repossess the home. A homeowner who has gone through a short sale may even be eligible to purchase another home immediately.

Takeaways Related to Short Sales

  • A short sale is a possible avenue for  helping underwater homeowners to avoid repossession, credit rating issues and evictions
  • For buyers, short sales can be tricky because it’s generally a longer and slightly more complex process the a typical sale (a bank is calling the shots as opposed to another homeowner), but great deals can sometimes be had. So as a buyer you must make sure the deal is worth your effort.

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Alex Greenwood

Personally, I'm the #1 agent in Southwest Florida, thanks in large part to my amazing team and the support of our brokerage MVP Realty. In addition SWFL RE Group has won top agency/practice 4 years in a row, and is also the top ranked and top reviewed Real Estate team on Zillow and Trulia.

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