A short sale is a transaction in which the seller’s home is worth less than the amount that the seller owes on the property. Typically, their mortgage is bigger than the list price of their home. That means when they go to closing they can’t re-pay their loan to the bank. So, the bank has to agree to take a loss on the home for a purchase contract to go through.
One attorney I work with estimated that only 20% of those transactions are actually approved by the bank. In many cases, the bank prefers to foreclose on the home. I am not exactly sure why, but it could be related to the bank getting their loss covered by insurance if the home forecloses.
Short sale approvals can take anywhere from 2 weeks to 6 mos. Banks are notorious for not communicating and for letting offers pile up. Usually, the buyer has no idea where they stand in the process, so they could wait for four months to hear from a bank only to find out that their purchase contract was rejected or that somebody else’s offer was accepted.
I had clients this spring who pursued a short sale for a few weeks. After receiving contradictory information and countless requests for them to pay various seller’s fees totaling up to over $10,000, they gave up and bought a different home. It was an unpleasant experience.
All that being said, short sales can be great deals. In the past, they were pursued mostly by investors who had their own separate, permanent residences and therefore could wait for banks. In the last year, short sales have become more mainstream due to the large number of them on the market. A couple years ago, you rarely heard the term “short sale”. Today, it is a part of the realty lexicon.
