Many people have heard the term "short sale" but are not exactly sure what it means. A short sale is when a homeowner is behind on their mortgage payment and they owe more than the current market value on the home. Current market value is determined by recent comparable home sales in your area. Comparables are homes within a certain radius of yours that have similar features. A real estate agent or an appraiser will usually use at least three other homes called "comps" to determine the value of your home.
They list it with a real estate agent at current market value to try and sell it before the foreclosure and redemption period are up. This means the bank has to agree to accept less than the full amount owed on the property. Short sales can be tricky as the listing agent doesn't usually know exactly how much the bank will accept so they have to set the price where they think it should be. They can present an offer to the bank and it can take a long time for the bank to give an answer, and then when they do they may counter back above the listing price. This can be confusing to buyers.
Another problem with a short sale is the time frame of the redemption period. When a homeowner is behind on their mortgage payment the bank will send notice of foreclosure after 4 missed payments, they will give the homeowner a date that their home will go to "sheriff's sale". From the date of the sheriff's sale the homeowner has a 6 month "redemption period" where if they can come up with the entire amount owed they can keep their home. This doesn't mean just catching up on back payments and late fees, it means you would have to obtain the entire balance of the loan from another source to "redeem" your home. If they have three acres or more the redemption period is 12 months. The homeowner can stay in the home until the redemption period is up.
The problem with a short sale is if an offer comes in too close to the end of the redemption period and doesn't have time to close before it's up the sale cannot be completed. The buyer will have to offer on the property again after it comes up for sale as a foreclosure. Short sales can be a good deal but as a buyer you will need to have the time to wait and it is best to work with an experienced agent. If you have a question that was not answered here please feel free to give me a call at 1-231-638-3090 or email me at t.halterman@exitlakeshorerealty.com.
I have been on both sides of the short sale process both as a listing agent and as a buyer's agent. I've had them take as long as four months, but on the other hand, I just offered on one and had it signed and accepted the very same day. Both of these examples are extremes and I would say most short sales will fall somewhere in the middle. I am working on one right now that I first wrote an offer on in November of last year, I got it accepted but not until just recently and now we are battling the clock to see if we can get it closed by February 21st as February 22nd is the day the redemption period is up and then we will have to start all over.