When entering into a real estate transaction, it is important to have an understanding of the terms involved. One such term that may come up is a “short sale.” A short sale is a type of real estate transaction in which the owner of the property sells the property for less than what they owe on the mortgage. When this is the case, lenders will often agree to accept the financial loss, in exchange for not having to go through the costly, and often time-consuming, process of foreclosure.
When Is a Short Sale a Possibility?
In order to qualify for a short sale, the seller must demonstrate to the lender that they are in financial hardship. This generally means that the seller is unable to pay the mortgage, or is at risk of falling behind on payments. A home that is being sold as a short sale will usually be listed at market value.
Example of a Short Sale
For example, let’s say that a homeowner has a mortgage of $200,000, but the property has only appreciated to a value of $180,000. In this instance, the lender may be willing to accept a payment of $180,000 instead of the full $200,000. Even though the lender does not receive the full amount due, it is usually more beneficial for them to accept the loss and avoid a costly foreclosure process.
Benefits of a Short Sale
For the buyer, a short sale can be a great deal. Not only are they likely to receive a steep discount on the property, but they will also have a much shorter wait time between the offer and closing. For the seller, the main benefit of a short sale is that they can avoid foreclosure and potentially have their debt wiped away.
Conclusion
A short sale can be a beneficial tool for both buyers and sellers in a real estate transaction. As long as the seller is able to demonstrate financial hardship and has the lender’s approval, they may be able to sell the property at market value, but for a discounted price. Understanding the ins and outs of a short sale will help both buyers and sellers to make the most of the transaction.