What Is a Short Sale?
You may still occasionally hear the term “short sale” in real estate, although they are far less common here in Northwest Montana than they were after the housing crash years ago.
Back then, short sales and foreclosures were everywhere and buyers could sometimes find significant discounts. Today, while they still pop up from time to time, they’re usually not the “steals” many people imagine them to be.
So what exactly is a short sale?
A short sale happens when a homeowner owes more on their mortgage than the property can realistically sell for in the current market. In order to sell the home, the seller has to ask their lender to approve taking less than what is owed on the loan.
For example, if a homeowner owes $400,000 on their mortgage but the property can only realistically sell for $370,000, the lender would need to agree to accept less than the full payoff amount in order for the sale to happen.
In these situations, sellers typically have a few options:
Bring cash to closing to make up the difference
Attempt a short sale with lender approval
Or, in more serious financial situations, allow the property to go into foreclosure
A Few Important Things to Know About Short Sales
They Can Take a Long Time
Unlike a traditional sale, short sales require lender approval, which can significantly slow down the process. Closings can sometimes take many months depending on the lender and situation involved. Patience and flexibility are important.
The Bank Has Significant Control
Even if a buyer and seller agree on a price, the lender still has to approve the deal. In some cases, the bank may counter the agreed-upon purchase price or request different terms before approving the sale.
They’re Often Sold As-Is
Many short sale properties are sold in as-is condition, and sellers are often unable or unwilling to make repairs. Buyers should go into the process understanding that there may be deferred maintenance or additional work needed.
Multiple Loans Can Complicate Things
Some properties have more than one loan against them, meaning multiple lenders may need to approve the short sale. That can add additional complexity and increase the chances of delays or negotiations falling apart.
While short sales can occasionally present opportunities for buyers, they also come with additional risks, uncertainty, and timelines compared to a traditional transaction. If you’re considering purchasing one, it’s important to understand the process going in and work with professionals who can help guide you through it.
