When we say short sale, we’re not referring to the length of time it takes to sell a home. Instead, the short refers to the fact that the purchase price of the home is less than what the current owner owes to the lender.
There are many advantages and disadvantages to short sales, which are important to know if you’re considering it.
Why Do Sellers Perform Short Sales?
Short sales are often attempts by sellers to avoid foreclosure. Eager buyers will also make offers below the mortgage value if a homeowner is struggling financially.
The Short Sale Process
There are typically four minimum requirements when it comes to short sales, including:
- A homeowner must have an eligible hardship
- A buyer must have financing in place AND be unaffiliated/unrelated to the seller
- The buyer must give the seller a reasonable, fair market value offer.
- Any lender with title interest must agree to a short sale.
Even if the buyer and seller agree to go through with a short sale, the lender can still reject it. Sometimes, lenders ask for other loss-mitigation options to be put into place before they allow a short sale to go through.
Short Sale Advantages
There are many benefits for sellers that decide to go through with short sales, including:
- Sellers can avoid foreclosure and release themselves from lender mortgage obligations.
- Sellers will be able to get approval for financing on another home much faster after performing a short sale than going into foreclosure. According to Quicken Loans, credit recovery is also much faster.
- Sellers are allowed to remain in their homes until the short sale is complete.
- The lender might offer the seller some form of payment for a relocation expense as part of the closing package.
- The lender will pay broker fees and closing costs.
Short Sale Disadvantages
Of course, every advantage comes with a disadvantage. Here are some of the most important to consider:
- The seller loses their home and any potential equity that they had in it.
- You might be responsible for any difference between the money that you owe and the sale price if you do not have the entirety of the debt eradicated. This is what we call a deficiency judgment. You might even be taxed on the difference if it is forgiven.
- A short sale can put a big dent in your credit. According to Equifax, one of the country’s major consumer credit agencies, most lenders don’t distinguish short sales from foreclosures when looking at credit reports either.
- You may have to pay taxes on relocation.
The Bottom Line
While it is preferable to go with a short sale over a foreclosure, it does not mean you will become exempt from any financial downsides.
Instead, you might consider selling your home off-market instead of going with a short sale. Working with a company like National Cash Offer, you can sell your home in “as-is” condition. You’ll never have to make repairs, declutter, or host showings. Get in contact with us today to learn more.