Short Sale-please help me understand (RE agent, appraised, negotiation, agent)
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I think this has been covered before so I apologize if this is a repeat...
Okay. A short sale is when a home owner lists the home for less than what they owe? Is this correct?
If so, what is the benefit of someone doing that? That means they will have to take that debt with them, correct?
If you are interested in buying a short sale property, is there negotiation room? Do the agents still get paid their commission?
Thank you for your help. We are going to go look at one tomorrow that is priced $130K below what it originally was listed at. Obviously overpriced in this market.
Thanks!
I think this has been covered before so I apologize if this is a repeat...
Okay. A short sale is when a home owner lists the home for less than what they owe? Is this correct?
If so, what is the benefit of someone doing that? That means they will have to take that debt with them, correct?
If you are interested in buying a short sale property, is there negotiation room? Do the agents still get paid their commission?
Thank you for your help. We are going to go look at one tomorrow that is priced $130K below what it originally was listed at. Obviously overpriced in this market.
Thanks!
A short sale can totally be to the benefit of the seller. If the seller feels that their house is going to lose a substantial amount of value and/or is paying two mortgages and/or is approach default AND has a substantial amount of equity, it's definitely a good move. Better to pass the hot potato to the next person than to get your hands burned.
i feel so stupid...
so if it is listed for less than they owe: lets say they owe $515K and you buy the home for $500K are they not losing $15K? There wouldn't be any equity, right?
FIRST...the definition of a short sale is any transaction in which a lender accepts less than the full amount due and agrees to write-off the balance.
SECOND...a borrower must be able to document hardship acceptable to the lender prior to their authorization of a short sale. Because you can't sell at a price sufficient to pay off the note is not hardship. Death, illness, unemployment, bankruptcy - these are generally accepted hardships.
THIRD...even if the borrower is approved for a short sale, the bank will only accept an offer that meets certain guidelines. In many cases this may mean that the buyer is paying at least a certain percentage (90% is common) of the appraised value of the home.
Before I even consider making an offer on a short sale, I interview the seller's agent to verify, as best one can, that all the borrower's ducks are in a row. If they're not, making an offer is too often a waste of time and energy.
A short sale can totally be to the benefit of the seller. If the seller feels that their house is going to lose a substantial amount of value and/or is paying two mortgages and/or is approach default AND has a substantial amount of equity, it's definitely a good move. Better to pass the hot potato to the next person than to get your hands burned.
This is silliness..the writer forgot or never knew how a short sale works.
To a buyer a short sale, when completed, is like any other RE transaction. You bought a house. It is no better or worse than a regular purchase or buying a REPO.
The difficulty of a short sale to a buyer is the completion of the sale. The process from the time you have agreed with the seller on an offer until you actually get to close is complex, confusing, delay prone and can fail.
The short sale requires that the owner of the mortgage agree to take less than owed to satisfy the mortgage. This creates another complex dicker between the seller and the mortgage holder over the terms and conditions of the short sale. This takes time and may involve the buyer and both RE Agents. If a second mortgage is involved the problem compounds.
The outcome of a short sale may be a very good price. You may well however have to earn some of that price in a long and arduous process to get it done.
And the write-off, or forgiveness, of the balance has tax implications, as it can be considered income.
Unless the borrower is able to show insolvency on IRS form 982. There was also a bill in Congress that would suspend the treatment of forgiven mortgage debt as income, retroactive to January 2007. It had a good deal of support last time I checked, but that was a few months ago.
Short sale = Owner owes more on the house than what he can sell it for (and pay closing costs).
A solvent seller could bring cash to closing to cover closing costs and the difference between the mortgage and sales price.
If a seller cannot payoff the debt, the bank may forgive the debt (but would probably issue a 1099 for the amount forgiven which the seller would have to claim as income on his tax return) . . . or
The seller could continue to be indebted to the bank for the difference through an unsecured note.
All short sales must be approved by the lender(s) - watch for 2nd mortgages, etc and leins against the property. The sales price and commission will probably be negotiated by the bank.
Expect a longer than expected closing, generally speaking.
Just remember the lender can come back with a deficiency judgement or issue a 1099 for the shorted about of the sale, which would be taxable to the seller.
Also, a short sale hits the credit report at 100 to 150 points.
If you have assets to pay the loan, the lender will not accept the short sale. The lender will want to verify that there is absolutely no way possible to pay the debt before granting the short sale.
I'm seeing many speculators who made bad deals trying to short sale to get out of the deal. If they have assets, it won't work.
From the buyer point of view, without good representation at contract time, you could be tied to the contract for months waiting for the lender to make up their mind on your offer.
Also, a short sale hits the credit report at 100 to 150 points.
I've been looking for that info...thanks, Dee!
How long does it take to fall away, say by 75%?
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