When you own a home and plan to sell it, the top priority is typically making more money from the sale. If you have owned that property for a long time and have a lot of equity, it is easier to turn a profit. However, not all sellers can afford to pursue a traditional sale, negotiate offers from buyers, and wait until a great deal is on the table.
When sellers face personal challenges or financial hardship, they may consider a short sale. Although the name implies a quick transaction, this is not always the case. Let’s discuss the short sale process and why it could be a solution to your financial situation.
What is a Short Sale?
In a typical sale, the seller lists their home on the market and waits for buyers to make offers. They then negotiate these offers to get a good deal and profit from the sale.
During a short sale, the seller agrees with the lender to sell the property for less than the remaining principal amount on their mortgage loan. This arrangement does not yield profits for the seller, as the lender will receive the proceeds to make up for the debt.
Reasons for a Short Sale
A short sale is typically used only in specific circumstances where sellers are facing unique challenges or financial hardship. For example, if the person has lost their job and can no longer afford mortgage payments, the lender may agree to a short sale so that the seller can avoid foreclosure in the future.
If the foreclosure process has already begun due to missed monthly payments, a short sale is less damaging to the seller’s credit report than a completed foreclosure. Similarly, if you need to relocate quickly and sell the home to end your mortgage payments, you can ask your lender to approve a short sale and potentially be eligible for relocation grants.
Parties Involved
Short sales typically involve multiple parties. The seller seeks to secure a buyer’s offer while negotiating with their lender to accept less than the outstanding mortgage balance. A real estate agent lists the property and facilitates negotiations between all parties, including the seller, buyer, and lender.
Most importantly, short sales depend entirely on the mortgage lender. Ultimately, the seller must ensure the lender approves the short sale and accepts the terms. If your lender agrees, the short sale can move forward. Otherwise, you may be facing foreclosure.
The Short Sale Process
With a short sale property, there is a distinct process that must be followed for the seller to walk away from the transaction feeling content. Here are the primary steps involved in a short sale.
Listing the Short Sale Property
Short-sale homes are listed and marketed in the same way that traditional homes are. However, the seller’s unique situation could cause hesitation for some buyers. It is essential to work with an experienced real estate agent who can help advertise your property on social media and a multiple listing service.
A top real estate agent will also have connections in their network that could help them find interested buyers for short-sale properties.
Receiving an Offer
Hopefully, your listing agent will attract offers for the home. For a short sale to work, the buyer and seller agree on a price that is less than the amount of the seller’s remaining balance on their mortgage loan.
Once you receive the buyer’s offer, you could try to negotiate for a higher price, but you must stay below the principal loan amount. Otherwise, it will not qualify as a short sale. If the seller accepts the offer price, they can proceed to the next step, which is often the most challenging in a short sale transaction.
Lender Approval
Since the sale price is below the remaining debt, and the mortgage lender will receive the proceeds, you must secure their approval for the short sale. Most lenders hate losing money on a deal, so selling the home for less than what is owed to them is not the best option.
However, if the lender initiates foreclosure on the house, it is usually more costly, so a short sale could save them money and be better for their bottom line.
Negotiation and Documentation
Short sales often require some convincing from sellers. They must demonstrate to the lenders that a short sale is the only option. You will need to negotiate your reason for the short sale and provide documentation supporting your argument. For example, a hardship letter, bank statements, and financial statements will help support the approval process.
Since the home is being sold for far less than its fair market value, you must get a good purchase price that can help settle the debt with the lender to convince them to accept the short sale request.
Closing
If the lender accepts your request and the buyer is ready to purchase the home, you can close on the property. Closing a short sale involves signing documents and transferring ownership of the house to the buyer.
The proceeds from the sale will then be given to the lender to settle the debt. Your real estate agent and an attorney will be heavily involved in the closing documents to ensure the legal complexities are addressed.
Factors Affecting the Timeline of a Short Sale
Even though their name implies they occur quickly, short sales can take a long time. Numerous factors affect the waiting period for a short sale transaction. Here are some elements that may cause your short sale to take longer than expected.
Lender Response Time
Lenders are not obligated to respond to short sale requests immediately. Some may process these requests in just a few weeks, while others may take months. Even if they do make a decision, it could be a rejection.
Number of Lenders Involved
When a homeowner sells their property, multiple lenders could be involved. The more lenders there are, the longer it may take for a short sale to be approved. This delay may stem from the multiple liens on your property since you will need separate approval from each lender.
Even if you have a primary mortgage, each loan means additional mortgage obligations, and another lender must approve the short sale.
Complexity of the Case
If your situation is complex, this will slow down the approval timeline. A difficult financial situation, significant debt, or legal complexities will make lenders take more time to consider the merits of a short sale. They may require additional steps to prove your financial challenges, further delaying the closing date.
Buyer’s Financing
The timeline of the closing process also depends on the buyer. Even though a short-sale home is purchased for a lower price than typical home values, most buyers still require financing to afford it. Their loan approval may take time before buying a short-sale property, so you will have to wait for their funding to go through before completing the transaction.
Typical Timeframes for Short Sales
Timelines for short sales can vary significantly. Your short sale could be completed in as little as a few weeks or as long as six months. Again, this timeline depends on the lender’s response time, the complexity of your case, the buyer’s financing, and the number of lenders involved.
Potential Delays
Several events could delay this real estate transaction. If the lender reviews your documentation and needs more information, they will make additional requests. Lender backlogs could mean your request is not even processed for several months.
A home inspection that goes poorly due to the property’s condition could cause a buyer to back out, delaying an already complicated process. The negotiation process with your lender could also drag on for a while as you demonstrate personal finance challenges or other hardships.
Working with a Cash Home Buyer
Between buyer negotiations, lender approvals, and the legal process of selling a home, short sales tend to be very complex. Selling to a cash home buyer can simplify this process significantly, providing you with peace of mind during a stressful time. The timeline for selling your home at a reduced price can be cut down with a cash home buyer.
Potential for Faster Closing
Cash buyers can hasten the short sale process. Without mortgage applications, appraisals, or lender requirements, cash purchases eliminate many common delays.
If you want to expedite the short sale process, A-List Properties can be the solution. Since we have funds on hand to buy your house as is, there are no financing issues to slow down your real estate transaction. Contact us today at 972-526-7042 or complete the online form to learn more and request a cash offer.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
