Becoming A Homeowner

Posted on: 22 June 2018

Any amount of time spent reading through real estate listings will likely result in a number of those that indicate 'short sale'. You may be wondering what this means, particularly when the home seems to be priced at a decent enough bargain price. Buying a short sale home might turn out to be the best value ever, but it pays to fully understand what you might be getting into. Read on for an explanation of what makes a home a short sale.

Short sales usually indicate desperate sellers.

The "short" part of the term indicates that the seller is offering the home at a price that, if sold, won't be enough to satisfy the current mortgage. The home may have a mortgage where the balance owed is more than the value of the home. Rest assured, however, that the lender has to agree to accept this lesser amount of money in return for getting the home off of their hands should it be foreclosed.

Short sales are caused by a number of factors.

One fairly recent and well-publicized cause of the number of short sale properties on the market today is the lending bubble that could not be sustained. Homes were provided with mortgages based on an inflated value. Today's market prices have recovered somewhat, but not enough to account for some homes that are now burdened with a huge mortgage that far outweighs the actual current valuations. That is far from the only reason for shorts sales, though.

If prices have fallen in the seller's neighborhood then it may place a limit on the value, even if only for a limited amount of time. Buyers should do their due diligence to ensure that the drop is temporary and not a trend of a neighborhood in serious trouble.

There are some instances of homes where the value for the current mortgage was overestimated and now the mortgage is higher than the recently-appraised value. Homes can lose value for many reasons so buyers will need to identify issues like noise, traffic, new industry in the area, pollution, and more.

Short sales allow the lender to get out of the real estate business

A foreclosure puts the lender in a bad position, and not just for financial reasons. Financial entities like banks and loan companies prefer to do what they do best, which is to lend money. When the seller cannot unload the home for the needed sale price, there is always the potential that it will end up in foreclosure.

Short sales require you to be careful

You should always use care when negotiating a real estate deal, but short sales may be a bit more complicated than usual. Determining the reason for the short sale is vital, and you should be prepared to pay more in closing costs since sellers are often distressed. Discuss short sales with your real estate broker to find out more.