Pam's Prescott Blog

Many of my Buyers and Sellers want to know, what is a short sale?  Contrary to what the phrase sounds like, it is by no means "short" in terms of the time invested.

A short sale occurs when the owners of a property must sell it, but unfortunately, owe more to the bank than the property is worth.  In an effort to salvage their credit rating, they attempt to sell it for less than they owe and try to get the bank to accept "short" of what is owed.

Short sales can be hard on both Buyer and Seller, but if each can be patient, a short sale can work to the advantage of both.

A seller must be at least two months behind on payments before most banks will even consider a short sale.  Sellers will want to begin contacting their banks early if they know they will be unable to make payments, and should start by asking the bank if there is anything the seller can do to avoid such a situation.  Sellers should not mention short selling initially, but should explain to the bank what they have done to try to sell the property, etc.  Establishing a conversation with the bank is important.  Sellers should also talk to a tax advisor about the potential tax ramifications of short sales.  If the seller can short sale their property they may be able to get out of their debt and save their credit rating, but this is not guaranteed.

Buyers wanting to buy short sales should be aware that they often take a long time to close.  The seller has to bring a signed contract for sale to the bank, but the contract is not considered fully executed until the bank (or banks if there is more than one loan on the property) has agreed to accept the offer, and this often takes weeks or even months.  In the meantime, a rate lock may be lost, the buyer may lose interest, or other properties may come on the market that are more attractive.  The buyer is not bound to the contract until it is fully executed, however.  If the short sale is successful, they most likely have bought a home under market value. 

If you are considering buying a short sale property or need to sell one, you most definitely need the help of a professional.  Don't hesitate to contact me!