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More short sales out there…

With the current real estate conditions, there are naturally increased levels of foreclosures and short sales available and more so than there have been in previous years. A short sale is when a seller owes more to the lien holder than the home can currently sell for. As a result of the negative equity, the seller is asking the mortgage holder to write off or forgive part of the monies owed on the property. These properties are generally distressed properties and offered at extreme discounts in order to expedite an offer from a savvy investor.

Why would the lien holder and the seller do this?

To avoid foreclosure: The costs are high for both the mortgage company as well as the seller when foreclosure happens. A short sale can save a lot of time and money for all parties involved and reap great rewards for the investor who comes along to buy the property.

Navigating a short sale transaction can be one of the trickiest real estate transactions that there is, but can be big on payoffs if it works. Here are some tips on being successful at both avoiding foreclosure by selling your home via short sale as well as for buyers who are interested in successfully investing in short sales.

Short Sale Sellers:

If you find yourself in a situation where you are upside down on your mortgage (you owe more than your property is worth), a short sale might be a good option for you. It is important to know, though, that a short sale transaction is never guaranteed and hiring a Realtor who is experienced in short sales is a vital key to your success in avoiding foreclosure.

The biggest requirement for being eligible to sell your home via a short sale is the element of hardship. If you do not have financial hardship, the banks aren’t willing to look at your situation in most cases. If you do have a financial hardship, then you might be a prime candidate for a short sale. Make sure that you are able to gather all your important financial paperwork - bank statements, mortgage statements, medical bills, tax returns, etc. The bank will want copies of all of these items to evaluate your case. They will also give you a short sale package which will include a financial worksheet. The biggest mistake potential short sale sellers make is not providing the information the bank needs to complete the file and evaluate whether a short sale is a reasonable measure for them to take.

Short Sale Investors:

If you have money to put down and time to wait, then a short sale is a great way to get your foot into the world of real estate - it is also great investment because in most cases, the properties that sell via short sales are sold at a deep discount in order to attract buyers and avoid foreclosure. These properties are in the MLS listed at ridiculously low prices and you might wonder what the catch is. The catch is that they are almost like false advertising or bait and switch - although not intentionally because these prices are not prices that the lien holders have agreed to as of yet. Short sales are listed lower than market because there is usually a financial hardship and the seller needs to off load the property in order to sell it before they are foreclosed on.

Go ahead and put in an offer, but be prepared to wait…and wait and wait in many cases - sometimes as long as nine months, but not usually. Three to six months is the average range although banks are starting to move a little faster in order to get some of these properties off their books in this current credit crunch. The problem is that while they are holding your offer “processing it”, the property is still usually being marketed and other higher offers can come in and knock yours out of first position. The NWMLS in Seattle has actually come up with a short sale addendum to address this problem. The NWMLS Form 22SS has a box where a potential buyer can check that they do not want the property to be listed as ACTIVE while they wait for an answer. As short sales increase across the country, these protections have become more of the norm which is good news for investors.

What do you need to invest in short sales? These properties are in the MLS so find a Realtor who has experience selling them and can easily find and identify short sales among all the other listings. Make sure that you are preapproved and know exactly how fast you are able to close if an opportunity comes up. Have your lender give you a strong preapproval letter and have proof of funds for your down payment. Follow up is also a key to short sale success. You have to have a Realtor who is willing to follow up and make sure that your offer is getting looked at and pushed along.

Final thoughts?

Short sales can be a great tool for both buyer and seller, but it is extremely important that you navigate the process carefully and diligently. The success rate of short sales is very low, but being prepared on both sides will go a long way in improving your chances of avoiding foreclosure or getting a great buy!