What Are the Challenges of Selling a Short Sale?

What Are the Challenges of Selling A Short Sale?

If you’re underwater on mortgage payments or facing foreclosure, a short sale may be a viable way to sell your property – but it’s an option that comes with a lot of risks.

Let’s take a look at short sales, and explore three reasons why they can be so challenging for sellers:

Why a Short Sale?

short sale is what we call the situation that arises when a homeowner wants to sell a house that is worth less on the open market than is owed on their outstanding mortgage (including other liens). In other words, a homeowner owes a lender more than their property is actually worth. The bank agrees to a deal that is ultimately “short” of the full debt amount, but enough to justify releasing the homeowner from their lien.

Short sales come up for any number of reasons – more often than not, they happen when the market dips and the value of a home falls.

To avoid going into default on your payments – and facing foreclosure – you may be highly motivated to sell and put your house on the market for less than you owe on the property. If and when an offer to buy comes in, it needs to be approved by the bank or mortgage company. If they don’t approve the contract, the deal is off.

What Are the Challenges of a Short Sale for Sellers?

Short sales can be very risky and difficult to complete, for both buyers and sellers.

If you can demonstrate hardship and you’re seriously considering launching a short sale, here are three major challenges to look out for:

1.) Finding the Right Buyer
When you’re looking to sell a short sale, it’s extremely important that you link up with the right buyer, one who’s willing to take a gamble and stick around with you for the entire process.

Look for a buyer who is certified and pre-approved for a home loan and who, ideally, is coming to you without any contingencies on their contract, including a need to sell their own home first.  Don’t be afraid to thoroughly vet and scrutinize them: The more you research them up front, the less of a chance that you’ll be unexpectedly left dangling later in the sale process.

Remember, the buyer is looking at the short sale because of the price, while you’re looking to avoid default and, hopefully, save your credit. This is a mutually beneficial scenario, so make sure you work as a team (along with your qualified real estate agent and attorneys, of course).

One thing to keep in mind: If the buyer offers the full amount right away or otherwise tips their hand too early, the bank or lender may raise their requirements – and the buyer may back out, forcing you to go back to market. Remember, work with a buyer whose team knows how to tackle a short sale – including making a low first offer to set realistic expectations with the lending company.

2.) Playing the Waiting Game
It’s not called a short sale because of the timing. In fact, the bureaucratic nature of the short sale can often cause it to drag on longer than the average conventional real estate transaction. Be patient and be ready to wait.

While there are federal regulations on the books that call for lenders to respond to an offer on a short sale within 30 days and deliver a final decision within 60, in reality, there are all kinds of loopholes – including asking for additional or revised paperwork – that can stretch out this process. Many short sales can drag on for six months or more, and, in fact, we’ve seen some short sale experiences go on for 13 to 14 months.

In short, keep your expectations for your timeline realistic and be ready for lots of ups and downs. We’ve had some clients go through three or four processes before making a short sale transaction work.

3.) Getting the Paperwork Right
Because short sales so often mean dealing with multiple parties (including an engaged buyer, a primary lender, and often a second or third lender) and dense paperwork at once, it’s no surprise that problems with documentation can stall many short sales in their tracks.

The short sale process can lead to a mess of documentation and red tape, but it’s key for your sale that everything is done correctly. Make sure your documents are all drawn up in plenty of time, and have your team assess that absolutely everything is signed and dated properly.

If you’re sure that you’re ready and willing to take on a short sale, it’s important to hire a team who knows the pitfalls and will help guide and educate you every step of the way. Real Group is here to help! When you’re ready to start the process, drop our team a line

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Chicago, IL 60614

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