Have you recently noticed a home that was a “short sale”? When we are seeing a short sale property, they can be a little different than a traditional sale. With the traditional sale, we're going to be having a homeowner selling their property. They're going to get net profits basically on the equity they have at home, and they're going to take those funds typically and use it for another purchase or a down payment on their next home. With a short sale, there’s not going to be any additional proceeds and typically the homeowner is looking to be able to walk away from that situation and be able to basically start over with their lives.
With that being said, a seller is taking a loss on the home and will not be making a profit while a bank will also be taking a loss based on the money they have lent for the home. Let’s say we have a property that is currently worth $300,000, but the seller has taken a loan against the home and now owes a total of $325,000 for the home. At this point, the seller is underwater or owes more on the home than it is currently worth. When the seller needs to move and they put the home on the market for sale, they will likely sell around the $300,000 that the home is worth. This is where the bank will come into play with the $25,000 that cannot be recovered. When we make an offer on these homes, the seller review gives a preliminary acceptance and then the offer goes to the bank. Once at the bank the offer is really reviewed in depth financially by the bank to see what the most they are willing to lose on that home and see if they are ultimately willing to accept that offer. When the bank is lending money, their goal is to make a profit and a return on their investment in the way of interest on the loan. When the property is sold for less than what it is worth, it can be a more timely process as the bank is taking a loss. The main thing to know is that as a buyer when you're going in to look at those properties, they're typically going to be in rougher shape. The homeowners are looking to be able to get out of a situation and they typically do not have additional funds for the upkeep of the home.
The second part is they do take longer to close. When we are making an offer, we typically will be making it directly to the seller rather than the bank. The actual bank is the one reviewing that offer though and doing the official acceptance. Generally, we will submit an offer to a seller after an acceptance but have to wait for a couple days but more likely a couple of weeks to actually get a response to the bank in terms of our offer truly accepted. It's a little bit more of a process, these take a little bit longer to close than a typical 30 or 45-day escrow. Generally speaking, you may be able to get a little bit better value out of these homes but make sure that you understand how and what you're getting yourself into in terms of the homes condition issues that we may not see offhand. It's definitely important for getting inspections for those reasons.
If you are looking at a short sale property, just keep in mind that it is a little bit tougher of a situation for the homeowner. You're likely not going to be able to get repairs done before closing, and generally speaking, we're ultimately going to be dealing with the bank.
For homeowners, what does that mean for you? As your real estate agent, my goal is when we go to sell your home; we want to be able to get the highest net profit that we can. A short sale will be a little bit different because there's more owned on the house so no funds will go back to the homeowner. My goal is to make it a smooth process, make sure that all the paperwork with the bank is properly completed and working with the bank to complete the process. There are a lot of fine details, especially in the contract, which is why you will want to have an agent that is aware of the best practices and ways to complete your short sale. It’s not a scarier process but it's something that you do want to have someone in your corner with and get hands-on with the experience behind them.
If you do have any questions and if you're possibly in a for short sale situation or if you're looking at purchasing a short sale, make sure you reach out, I'd be happy to guide you through the process!