Teacher Next Door Blog

Short Sale vs. Regular Sale

July 21st, 2012 1:06 PM by Teacher Staff

Nowadays most everyone has heard the term short sale. Prior to 2006 it was pretty much considered an “industry term” and represented less than 1% of all homes sold in the U.S. Back then it was usually the result of a buyer having to sell within the first year of purchase. Today, in many markets, short sales represent over half of all the homes listed.

So what is a short sale? Simply stated, a short sale is when the bank allows the seller to pay off the existing mortgage for less than what is owed. There are advantages and disadvantages for both the buyer and seller. The good news is there won’t be a test on any of this at the end of the blog.

When a seller has negative equity or owes more than the home is worth, they may benefit from a short sale for several reasons. First, it allows them to sell the house without having to bring cash to the closing or owe any additional money to the lender. Second, if the seller can’t afford the mortgage payments, it may keep them from foreclosure. Lastly, it allows them to price the home at today’s market value; otherwise it would never sell if it had to be priced high enough to pay off the current mortgage.

It is absolutely imperative that sellers receive proper professional and legal advice when completing a short sale. Among other things, they will need to be sure the lender is actually forgiving the remaining balance and not just releasing the title and also know the tax implications of the forgiven debt.

Buyer’s all want to know if a short sales is a good deal. If you love the home, then yes it’s a good deal. However in most cases, even if the bank is discounting over $100,000.00 of the seller’s debt, they are not going to accept a price less than the current market value. So in reality, the short sale is not saving you a significant amount of money.

The biggest draw-back to purchasing a short sale is the amount of time it takes to get the seller’s bank to approve the short sale. In a regular sale, the seller will usually accept the offer within a few days and you can expect to close 30 to 45 days later. With short sales, the bank can take over 30 days just to approve the sale and in some cases could even take up to 90 days. Then you begin the 30-45 day closing process. What’s worse, if the bank takes 90 days and doesn’t accept the short sale offer, you could have to choose another home and start all over.

You may have to include short sales in your search just because they represent such a large percentage of the homes available. What we usually recommend is three separate lists. Look first at regular listings, then HUD or bank owned foreclosures, then short sales. You can get a good deal on a foreclosure or short sale but the home buying process is definitely easier and quicker with a regular listing.

The experts at The Teacher Next Door will be happy to help guide you through the pre-approval and home buying process, including distinguishing between the different types of home listings.

Please feel free to add you comments or questions to our blog. You can also call or e-mail The Teacher Next Door with any questions you might have.

Posted in:General
Posted by Teacher Staff on July 21st, 2012 1:06 PM


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