What a Short Sale is and what it means for Buyers

What is a Short Sale?

A short sale is when a homeowner sells their property for less than the amount owed on the mortgage (plus closing costs and other liens), and the lender(s) agrees to accept that reduced amount as full payment. This typically happens when the homeowner is facing financial difficulties and cannot continue making mortgage payments, but they want to avoid foreclosure. For buyers, a short sale can offer an opportunity to purchase a home at below-market value, but it comes with specific considerations and a longer timeline.

Process of a Short Sale:

  1. Offer and Negotiation:

    • You, as the buyer, make an offer on the property just like any other sale. However, in a short sale, the seller must get approval from their lender to proceed with the sale.
    • The seller’s agent submits the offer to the lender(s), and the lender evaluates whether to accept it based on the current market value, the seller’s financial situation, and the amount owed on the mortgage.

  2. Lender’s Review:

    • The lender(s) will review the offer, the seller’s financial hardship, and any relevant documents (such as tax returns and financial statements).
    • This stage can take a while because the lender is reviewing all aspects of the short sale to ensure it’s the best option for them, given the circumstances.

  3. Approval:

    • Once the lender agrees to the offer, they will issue an approval letter, and the process moves forward. If there are multiple lenders involved (which sometimes happens if there’s more than one mortgage), it can take longer to get approval.

  4. Escrow and Closing:

    • After lender approval, the process moves into the escrow phase. You, the buyer, will go through all standard steps: home inspections, appraisals, and finalizing financing.
    • Once all conditions are met, the sale closes, and you take possession of the property.

Expected Timeline:

  • Initial Offer to Lender Review: 1-2 weeks (this can vary depending on the lender’s responsiveness).
  • Lender Decision: 30-60 days, but this can extend to 3-4 months or more, especially if there are multiple lenders involved or the process gets delayed.
  • Escrow and Closing: After lender approval, typically 30-45 days, depending on buyer financing and inspection contingencies.

Considerations:

  • Uncertainty: There’s no guarantee the lender will approve the short sale, even if you and the seller agree on terms. Be prepared for delays and potential rejection.
  • Price: While short sales may offer below-market prices, they often come with the need for repairs or other hidden costs.
  • Seller’s Motivation: The seller may be motivated to get the process done quickly, but they can’t always control the timeline, as it’s in the lender’s hands.

Benefits and Risks for Buyers:

  • Benefits: A short sale can result in a good deal, often a lower price than the home’s market value.
  • Risks: The process can be lengthy and frustrating. There’s also a possibility the sale might fall through after a lot of waiting.

If you decide to pursue a short sale, it’s important to work with an agent experienced in these types of transactions to help navigate the complexities.

Jennifer Harper | Executive Realty Services | S.0168752 | LasVegasHomesByJennifer