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Friday, January 21, 2011

Real estate short sale

Due to the housing downturn spanning past several years, many homeowners these days are finding themselves upside down on their property, meaning they owe more on their mortgage than their house is worth. While some of these homeowners have decided to simply walk away from such properties, many other homeowners are trying to unload such properties via a short sale.

A short sale in real estate is when the mortgage lender agrees to accept less than the total amount of mortgage due on the property. For example, the mortgage on the property may be $300,000 but in a short sale, the lender could agree to accept less than $300,000. For the property holder, the advantage of a short sale is that by selling the property, he can free himself from the burden of mortgage. For buyers, the advantage is that they may get a property at a bargain price. In fact, because of this advantage, in many areas of the US, even first time home buyers are trying to buy houses on short sale.

If a short sale is such a win-win for both sellers and buyers, why don't all buyers and sellers go for a short sale? It's because of many reasons, including the following:

- Not all lenders approve short sales.

- Not all properties are eligible for short sales.

- A short sale involves a lot of complexity and time. It can take several months and a lot of paperwork to close a house on short sale.

- Since short sale can take a lot of time, mortgage rates can jump from the time the buyer first puts in a offer for a house on short sale. As a result, the advantage of the lower house price may be more than offset by the increase in mortgage rates.

- Since a lender is involved in the transaction, buyers and sellers have less control on when the closing will happen. This can be an issue for some buyers who may need to move within a certain timeframe.

- A short sale can also have tax implications, especially for the seller. While I am not a financial advisor or tax professional, because of tax ramifications, it's important to consult a competent tax professional.

- A short sale can also negatively impact the credit rating of the property seller.

- Not all real estate agents may be experienced in selling properties on short sale, and some of them may not even show such properties to the prospective buyers because of their lack of experience as well as potentially lower commissions on sale of such properties.

These are just some of the reasons that not all people jump in for a house on short sale. Despite these disadvantages, short sales may offer advantages for both the property sellers and buyers, which is why many areas in the country are experiencing increasing number of short sales.

If looking for a property on short sale, apart from your realtor, you can also use internet to find information. For example, you can use real estate sites like Trulia (to go to the site, click here. On the home page, enter your criteria to do the search, and then on the left hand side of result page, you can do a keyword search on "short sale" to find properties that are on short sale).

Other sites such as Zillow.com and RMLS.com (to go to the site, click here) may also have such information.

Note: the above is a paid post.

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posted by Ruby @ 2:32 PM

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