While a lot of attention has been given to foreclosures, there's another form of distressed housing known as a "short sale."
Short sales are often available at discounted prices but they're very different from "foreclosures," a term which can be broadly defined to include homes which may be auctioned on the courthouse steps or sold from lender inventories.
With a short sale we have an owner who wants to sell but the size of the mortgage debt is greater than the market value of the home.
One solution is for the owner to sell the property and bring enough cash to closing so that the lender can be fully repaid. In practice this option is not available to most owners, especially when the missing cash due to the lender can be as much as five or six figures.
As an alternative, the owner might try a different route, selling the home for as much as the market will allow and asking the lender to accept a loss equal to some or all of the unpaid debt. In other words, a "short sale."
Unlike many foreclosures the owner of a short sale typically occupies the property. This means that vandalism, heating and air conditioning and a lack of routine maintenance are generally not issues. Moreover, the owner is motivated, he or she really wants to make a deal - in some cases because the property was financed several years ago and the loan's initial low monthly cost has risen significantly.
In a sense both buyer and seller have a shared goal. The catch is that the lender's goal is different. The lender wants as much from the property as possible. It will only agree to a given sale value if it thinks that's the best deal available or that a short sale is better than the expense and hassle of a foreclosure.
Will the lender approve the deal? The answer is that lender responses can be drawn-out and lengthy. Extensive negotiations with the lender may be required, something sales professionals from Carrington Real Estate Services handle with frequency.
Short sales are now a big part of the marketplace. In February 2012 such transactions represented 14 percent of all existing home purchases according to the National Association of REALTORS®.
The discounts associated with short sales vary significantly and depend in large part on condition and location of the home. One would expect bigger discounts in major foreclosure areas and smaller discounts where markets are stronger. NAR says "many buyers are purchasing more homes through foreclosures and short sales, and these homes typically sell for approximately 20 percent less than traditional homes in the same area."
For additional information, speak with a sales professional at Carrington Real Estate Services and let us show you the short sale opportunities in your community.