What is a Short Sale?

Published by julia | Filed under Buyer / Seller Tips, Listings, Real Estate

What is a short sale in real estate? It’s probably a term you’ve heard a lot lately. If you’ve been looking for a house to buy, you’ve no doubt noticed the plethora of advertisements proclaiming a short sale. If you’re trying to save your home, this option may have been presented to you. But what is it?

A short sale in real estate is when the bank handling the mortgage on a property decideds to allow the property to be sold for less than the amount owed. While more and more banks are turning to this option lately, don’t assume it’s a given if you’re late on your loan payments. In order to get a bank to agree to a short sale, your house’s value must be incapable of meeting the amount of the mortgage. This means your chances of getting an offer on your home for the amount you owe on it are almost non-existent. Next, you must genuinely be unable to make payments on the mortgage and need a way out in order to avoid having a foreclosure on your credit report.

Short sales have become more common due to the continuing mortgage crisis. Many houses that were purchased for outrageous sums several years ago when the market was good are now worth only a fraction of what was paid for them. Also, a lot of buyers got into adjustable rate mortgages at that time. These mortgages were attractive at first, with low interest rates, but those rates went up drastically after a few years, increasing monthly payments beyond what the owners could afford. Many owners need a way out now without taking too severe of a hit to their credit, and a short sale is a good option. For bargain hunters in a position to buy, it’s like the gold rush all over again.