What Exactly is a Home Short Sale?

Sunday, May 31st, 2009 at 3:32 am

A home’s short sale is the phrase used when a lending institution is willing to accept less than the amount owed on a mortgage as a payoff. You might wonder why a bank would let you sell your house for less than what you owe on it. Well, it’s a simple answer, really.

The lending institution needs to cut its losses. When a home’s short sale offer is submitted to the bank, they will take a look and and decide to do one of three things. They will make the decision to accept your offer, deny the offer, or they can make a counter offer.

If the bank decides to accept your offer, that will sound like a good deal for you. However, an acceptance that’s given right away may not necessarily be so good for you.

If your offer is immediately accepted, it probably means that you offered a price that either meets or exceeds the bank’s expectations. Let’s put this into perspective.

Let’s imagine that you’ve loaned your friend Jim $1,000. Jim’s doing well, and paying you back every month as he agreed. Then, suddenly Jim loses his job and he can’t make the monthly payments to you.

Jim still owes you $700, but you make up your mind that you’ll let him off the hook if he can pay you just $400 more. Jim calls you and offers you a final payment of $500 if you’ll call it even. What do you think you’ll say? You’ll agree to it, of course – that’s $100 more than you were willing to settle for! Guess what? The banks do the exact same thing!

Now let’s talk about counteroffers. This is absolutely the best place for you to be in a home’s short sale. A counteroffer means that the bank is being open, and they’re willing to accept a short sale, just not quite at the price you offered. It tells you that they are definitely willing to accept a short sale, just not at that low of a price.

Let’s get back to Jim. What would have happened if Jim had come back to you and offered you $200 on that $700 remaining balance he owed you?

You give it some thought, and you you tell him no, you really want the $700, or else a very good reason why he should accept less money. Jim tells you that he’s lost his job, he’s really trying to take care of his kids, keep food on the table, and he just doesn’t have $700, but he offers you $500. Obviously $500 isn’t as good as $700, but it’s better than nothing, so you accept.

That bank will do this in order to cut their losses as much as they can. If your counteroffer is better than any other money they would get otherwise, such as in a foreclosure, they’re very likely to accept it.

The final scenario is denial by the bank to accept your offer. This means that the bank absolutely doesn’t see that a short sale would be in their best interest, end of statement. But – they just might accept a short sale at a later date.

Negotiating a home’s short sale can be a very complex issue. Most homeowners and some professionals don’t really understand them. I would always recommend that you go to an expert for the most beneficial outcome.

Most Real Estate Agents haven’t been trained on the specifics of conducting short sales. They’re usually trained to help homeowners buy and sell homes, not negotiate their home’s short sale. So when you look for an agent to assist you, you absolutely must do your homework.

Looking for a real estate agent who is willing to help you isn’t impossible, bit will take a little time. If you want to quickly find someone who is very knowledgeable, look for an investor.

Home short sale investors typically know a lot of agents who are experts in negotiating short sales. If you find an investor to help you, you can accomplish two things

One, it’s nearly guaranteed that you will have an agent who is truly a short sale real estate agent. Two, you’ve also found a strong buyer for your home. Most investors purchase homes with cash, and and when the bank hears that there’s a cash purchaser, they’re much more likely to allow you to sell your home for a short sale.