What is a short sale?
A short sale refers to the transaction where the bank allows the homeowner sell a house at an amount that is less than what is owed. The borrower has to hire a real estate agent and advertise the home in order to attract more potential buyers. In such a situation, if the home sells as expected, the bank or lender will be able to recover the amount the homeowner owes. Many buyers take advantage of short sales due to the fact that it offers them a likely bargain. The benefit of this trend is that real estate property will appreciate with time, especially if the real estate market condition gets better.
Here are the 3 Benefits of Short Sale:
Short sales favor buyers. However, it can cause detrimental effects on other people directly or indirectly. The lucky buyer will be the new owner of the house, but the lower amount paid is inserted in real estate databases. Unfortunately this may lead to a decrease in the Fair Market Value (FMC) of similar properties. This can also affect the buyers if they are trying to flip the house because the value will be lower due to the short sale. In such a situation, it is prudent for buyers to refrain from selling their property quickly while the market prices are still low. When the market fully recovers, they can go ahead and sell their property with a better return on investment.
Fair Financing Terms
Despite the fact that short sales have to be approved by the bank in order to allow for the sale of the property at a price less than what is owed, it is still one of the most cost effective ways for the bank. In most cases, the current homeowner is not in a position to repay the outstanding loan. The bank has two options; foreclosure or to consider a short sale as the best alternative to recoup the amount it owes. Many banks offer potential clients favorable financing terms to attract them. For instance, the lender may consider offering low interest rates to a likely buyer to avoid additional expenses by selling the property quickly.
It is worth noting that the lender does not want to lose money at all and will therefore look for a way to recover the portion of the property or mortgage loan than incur loss. Banks prefers short sale, which allows the homeowner and the bank to reach a fair deal. However, the main concern of the homeowner is whether the lender will take legal action against him or her in an attempt to recoup the total amount of the loan after a short sale as in the case of foreclosure. However, this procedure is costly and time consuming. In this scenario, the lender will cut its losses with the homeowner who fails to repay his or her mortgages due to hardships like loss of income or even divorce. Reduction of the amount owed will not only alleviate the burden, but also protects homeowner’s credit.
A Better Alternative
Whenever possible a short sale should be pursued as an option for both the homeowner and the buyer. However, the homeowner must have a substantial amount of equity in the home for the bank to consider a short sale. Banks are not in the business to lose money, but they also understand the value of cutting losses short instead of incurring additional liabilities and cost. If you have questions feel free to contact us.