Short Sales | What is a short Sale | Idaho short sales

Posted by Jace Stolfo on Wednesday, June 4th, 2008 at 9:32pm.

You often hear the term "short sale" in today's market.

What is it?
 
A short sale is when a property is being sold or offered for sale for less than what is owed.  The lender always has to approve these sales because they are taking a loss on the loan.

When does it happen?
 
Most homes being offered as short sales are in the process of foreclosure but have yet to reach the auction.  Banks are increasingly looking at short sales rather than going all the way through the foreclosure process.  There are different reasons why homeowners could be in a short sale situation.  They could have bought too high and values soften, taken the "equity" out from an overinflated refinance appraisal, carried a construction loan too long, etc.  Short sales were rare when the market was appreciating but as market values soften more homeowners are finding themselves not able to sell except at a loss.

Be aware of the asking price:
 
You will often see "short sale" homes advertised for a great price- after all the homeowner doesn't care if the bank takes a $5,000 or a $100,000 loss.  But just because you see a home advertised at a certain price doesn't mean the lender(s) will approve that amount**.  It's the homeowner and listing agent who are setting the asking price.  The homeowners motivation to sell the home is to mitigate the damage done to their credit by selling it before the foreclosure auction, they are not making any money from the sale.  They're going to price it at whatever they have to to get an offer to submit to the lender.
 
** A small percentage of short sales on the market have been approved by the lender.  If they have it will likely be advertised because that's a big selling point.

How does the bank decide on what they will approve?
 
After a complete short sale package is submitted to the lender (an offer, financial statements & hardship letter from seller, etc.) the bank will order a broker's price opinion (BPO) or an appraisal from a third party not involved in the transaction.  Once the bank has this valuation they'll make a determination of what they'll authorize for a sales price.  What you're able to buy a short sale for has little to do with the asking price or what you offer, the bank is going to authorize a sales price based on the information from this independent third party.  So how do you know what's a realistic price? Real estate broker's such as myself, who are experienced in short sales, can evaluate these properties and give you an estimate of what it's likely to go for.  From there, you and your agent can develop a strategy for an offer.

The biggest drawback buying a short sale:
 
The biggest drawback in dealing with short sales for a buyer is time.  Generally, it's going to take 8 to 12 weeks after you make an offer to get short sale approval.  Although, depending on the lender(s) and lien holders it can take over 6 months.   Again, your agent who deals in short sales knows the questions to ask to estimate a time-frame for short sale approval.

Should I pursue buying a short sale?
 
If you are in no rush to buy and you are very patient- then short sales can be a great route to explorer for a deal.  If you are considering buying a short sale, you should consider some language in the contract to allow you to back out until you have lender approval.  That way if another opportunity presents itself or you find that you have waited for months with no light at the end of the tunnel you have an out.

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This information is deemed reliable but no representation, warranty, or guarantee of any kind is made.

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