A short sale happens when a homeowner can no longer afford to make payments on their home. Instead of the bank foreclosing the home, they encourage the owner to sell it and the bank will pay for their agent and closing costs.
Why Is It Called A Short Sale?
When the homeowner lists the home, they will typically receive an offer that will not help cover their mortgage costs, therefore they end up “short” on paying back the lender, but the lender will agree to accept less than what is owed in order to avoid a foreclosure.
What Is The Difference Between A Foreclosure & A Short Sale?
A foreclosure happens when the bank takes ownership of the home because the owner can no longer afford it. The owners are typically evicted during the process and the bank will sell it through auction or with the help of a REALTOR®. Foreclosures close more quickly and have a negative impact on one’s credit. It may stay on the owner’s credit for several years, making it difficult to find a new place to buy or even rent. Typically, foreclosures are more common in the US than Canada.
During a short sale, the homeowner has agreed to sell the home and does not have to leave until the sale is complete. It will also take a longer period of time to close the deal. Your credit score will still take a large blow from a short sale, but it may be easier to repair.
How Do Short Sales Affect Buyers?
Buyers may be interested in a short sale because they are obviously getting a reasonably priced home. But it is not that simple. Short sales do not close quickly, so even if the buyer and seller agree on terms and conditions, the lender can still reject them. The lender can also reject your offer or counter-offer, seeing as they are the ones in control, not the seller. The lender is also selling the property to you as is, so paying for a home inspection is critical to determine how rough of shape the house is in. If the homeowner could not afford their payments, they may not have been able to afford keeping up on other things either like general upkeep. Even though the home may be for sale at a reasonable price, can you afford all the repairs and upgrades? This is why it is also important to have a REALTOR® who specializes in short sales and can guide you through the process and offer their professional advice.