First Time Homebuyer Word of the Day Short Sale

Understanding real estate terms can be frustrating for the first time homebuyer. In fact, many people buying real estate struggle to understand some of the words used most often used by REALTORS®. No term seems more used and misunderstood than short sale.

As a Minnesota REALTOR®, I have receive calls from excited first time homebuyers (and their helpful parents) as they begin a search for a first house. A lot has changed since the parents bought their first home over a decade ago so many questions arise.

A few days ago a call came from an excited first time homebuyer who has been reviewing listings online trying to find a dream home at an awesome price. He called wanting to set up some showings for the homes he found. He emailed a list of a half dozen homes and I bring up an array of possibilities. Five of the six properties, are listed as short sales. When I pass on the information on to my eager potential homebuyer, I hear a puzzled silence.

What exactly is a Short Sale?

Even after the abundant media coverage of the mortgage crisis over the past few years, many people still do not understand exactly what a short sale is....And more importantly, how it affects the home buying process. In a nutshell, a short sale is when the seller owes more on the home than it can be sold for in today’s market. In order to sell the home and avoid a possible foreclosure, the homeowner must ask the bank to take a loss on the sale by approving the purchase at the lower value. It is also know as a pre-foreclosure home and can be a way for a homeowner to avoid being foreclosed upon if they can no longer pay their mortgage.

Why should a homebuyer care if a home is in short sale? When a homebuyer writes and offer on a short sale home, the offer is submitted with earnest money to the property owner selling the home just as in any other real estate transaction. The sales price and terms are negotiated and agreed upon by the homeseller who then signs the purchase agreement. But the agreement is contingent upon the bank who holds their home mortgage agreeing to accept less money than is owed on the market to clear the title for sale. Some larger banks have hundreds, if not thousands, of these files waiting for short sale approval. It is normal to wait 12-16 weeks for an answer from the bank. Adding to the problem, many sellers will have more than one mortgage on their home and therefore more than one bank will be involved in the approval process. In some cases, the purchase price might cover enough for the first bank to receive most of its money back so it will be willing to approve the sale. But the second bank, who is in a subordinate position, will get nothing and not approve the deal. It can be frustrating for a home buyer to wait for a closing to be scheduled when there is no guarantee as to when the bank (or banks) will respond.

How does a short sale compare to a foreclosure? In a foreclosure, the bank has taken back the home from the owner. The seller is now the bank and homebuyers along with their agents, deal directly with the bank when an offer is written. A bank representative did not reside at the home so cannot fill out a disclosure with information about the condition of the home. While negotiations are easier and much faster, buyers must accept the risk and purchase the home in as-is condition. While it is always recommended to have a home inspected, it becomes extremely important to be diligent and inspect everything thoroughly when buying a bank owned property.

Additional Real Estate Terms in the Glossary:

If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me, Teri Eckholm of RE/MAX Specialists, a call or visit my website for a FREE Relocation Packet or Homebuyers Success Packet. I specialize in

acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.