In a short sale, a homeowner is forced to sell their home as they’re no longer able to keep up with repayments. However, the value of their home has dropped, and they must agree to sell for less than the amount owed to the mortgage lender. While this is a tricky situation, there are some benefits to be gained by everyone involved. Let’s take a look below.
Benefits for the buyer
Short sales are often given a bad press, and buyers are typically advised to proceed with caution. While there are reasons why you might be better off looking for a different home, there are benefits to be reaped.
Bag a bargain
One of the major draws with a short sale is that the price is often pretty low. This is normally because the seller is in no position to pay for any repairs that might be necessary, and so the buyer is expected to absorb them. As such, many short sales are fixer-uppers, which means you can get your hands on more house than you might normally be able to afford. Just be aware that you should be willing to carry out some of the repairs yourself.
Great financing terms
It’s in the lender’s best interest to sell the home rather than let it go into foreclosure, and while they’d rather not lose money, they can see the benefit of a short sale. As such, they may offer the buyer more attractive terms, such as lower interest rates or more flexible conditions, in an attempt to sell the property and avoid additional costs.
No nasty surprises
Another way to bag a bargain is to buy a foreclosed home. However, this is far riskier for the buyer, as they must buy the home as-is. Homes can be trashed by former owners when they go into foreclosure, or they may flat out refuse to leave, in which case messy legal proceedings will need to be carried out. With a short sale, the seller is actively selling their home and is more likely to leave it in good condition. You’re also able to carry out a home inspection, so you know exactly what you’re getting into.
Benefits for the seller
While losing your home is never easy, a short sale is by far the lesser of two evils compared to a foreclosure.
Avoid a major credit hit
When you go into foreclosure, your credit score plummets and can take up to seven years to even begin to recover. The hit to your credit after a short sale is far less damaging and can keep you in the market to take out a loan in the nearer future.
Less stress than a foreclosure
Foreclosure is pretty much the end of the road in real estate, and the prospect can cause huge amounts of stress. This is typically added to stresses that are already being felt as the financial strain takes hold, and the prospect of being ‘financially tarnished’ and potentially homeless can lead to mental and physical health problems. While a short sale has its own stresses, the stakes are nowhere near as high.
Control over the sale process
In foreclosure, the bank repossesses your home and may sue you for a deficiency judgment. They’re then in charge of selling it. During a short sale, however, the homeowner is still in control of the sale process, which typically runs like a normal sale. They continue to work with the agent, buyers, and lenders and avoid the pressures of being forced out.
Benefits for the lender
There are no two ways about it: the lender stands to lose money during a short sale. However, they would lose much more money and time if the property went into foreclosure. This is what makes short sales a viable option.
Avoid additional fees
Repossessing a home isn’t cheap, and lenders must pay numerous fees, including legal fees, which can mount up if the owner refuses to leave and the eviction process must be initiated. Even with the owner out, as the new property owner, the lender is required to pay taxes, maintenance costs, and perhaps even repairs to prepare it for sale, until it’s sold. By agreeing to a short sale, they avoid all of these costs.
More likely to recoup their losses
Rather than hold onto an unsellable house, it’s in the lender’s interests to recoup as much of their losses as possible. This is far more possible by allowing a short sale, and in a hot market, the seller might even be able to get a better offer, reducing the loss further. In the end, it’s up to the lender to approve an offer, so they can wait until a good one comes along.