what are the benefits of a short sale

If approved, the benefits of a short sale include:

• Fair market price for the buyer
• Seller avoids foreclosure
• Mortgage lender recuperates some of the loan principle and avoids costly foreclosure process

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What are the cons to buying a short sale?

The disadvantages of a short sale:

• You need to take responsibility for the sale of your home vs walking away in a foreclosure.
• The approval process can be time-consuming (we take care of that for you).
• There are potential tax ramifications for either a short sale or foreclosure.

How can a buyer benefit from a short sale?

What Are the Benefits of a Short Sale for a Buyer?

• Low Pricing. Foreclosure can be devastating to a homeowner and come at a high cost to the lender. ...
• Favorable Financing Terms. Even though a short sale requires the bank to agree to sell the home for less than the value of the current loan, short sales often represent ...
• Cooperation from Homeowners. ...

What are the benefits of doing a short sale?

The Pros and Cons of Buying a Short Sale

1. Short sales can take a long time. The term “short sale” is a bit misleading. ...
2. They are sold as-is. Unlike a traditional home purchase, the buyer of a short sale is unable to negotiate on price in exchange for needed improvements, repairs, or updates.
3. Make sure the lower price is really worth it. ...

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What is a short sale and who does it benefit?

Short sales are an option for homeowners who are underwater on their mortgage to sell their property, and to avoid going into foreclosure. For many distressed homeowners, short sales are an alternative to foreclosure. Here are the steps sellers need to take in order to sell their properties in short sales:

Why would someone do a short sale?

A home goes into short sale when the homeowner realizes that they can no longer afford to keep up with their mortgage payments. Instead of waiting for the bank to foreclose on the home, the homeowner initiates the short sale process by submitting an application to the lender.

Is buying a short sale a good idea?

In short, short sales are a good idea if you have plenty of time and money. A short sale buyer may get the property at a reduced price, but the property (in all likelihood) has its share of problems — think “fixer-upper” — and the deal needs to go through considerable red tape to make it happen.

What are the cons of a short sale?

7 Disadvantages of Buying a Short SaleLong Process. ... Subject to the Mortgage Lender's Approval. ... Lender Could Counter, Reject or Not Respond. ... Opportunity Cost. ... Property 'As Is' ... Is the Seller Approved? ... Lenders Prefer All Cash or Large Down Payments.

What are the pros and cons of buying a short sale?

The Pros and Cons of Buying a Short SaleShort sales can take a long time. ... They are sold as-is. ... Make sure the lower price is really worth it. ... The good deal factor can be influenced by the market conditions. ... Less competition. ... Don't overlook needed repairs. ... Home inspections are a must.More items...•

Can you offer less on a short sale?

Can You Negotiate A Short Sale? It is entirely possible to negotiate a short sale, but doing so can be a time-consuming process. Instead of negotiating with the seller alone, as is the case with most traditional sales, short sale negotiations must be approved by the lender, too.

Why do banks prefer foreclosure to short sale?

It costs more to the lender to go through the foreclosure process. During a short sale, the lender shares the cost with the homeowner to quickly sell the home. From a financial standpoint, many lenders prefer a short sale if the home is not expected to sell for more than the balance due at the foreclosure auction.

What happens after a short sale is approved by the bank?

The lender agrees to accept the sale proceeds and release the lien on the property. The proceeds of the sale pay off a portion of the amount owed. Short sales are one way for borrowers to avoid foreclosure.

How can I speed up a short sale?

Speed up your short sale closing date by making your offer as free of contingencies as possible. Submit your mortgage approval with the offer. Contribute a substantial deposit to show your good intentions.

What does short sale on Redfin mean?

Simply put, a short sale may be authorized by the mortgage lender when the current value of a home is lower than the outstanding balance on the mortgage.

What short sale means for buyers?

A short sale is when a mortgage lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner. The lender forgives the remaining balance of the loan.

Why do short sales take so long?

With a short sale, the seller is asking the bank to take less than the amount owed. Even if you've made an offer and the seller has accepted it, it's not a done deal. The seller's bank must approve the sale, and this is where the big delays can happen. Banks are losing money in a short sale and aren't too keen on it.

When a seller owes more on a property than the current value it is commonly called?

Nationally, less than 10% of homeowners have negative equity, which means they owe more on their home than it's worth. It's also known as “being underwater.” Sellers often end up underwater by taking out a second mortgage to cover other expenses or debts.

What happens when you short sell a house?

In a short sale, a homeowner is forced to sell their home as they’re no longer able to keep up with repayments. However, the value of their home has dropped, and they must agree to sell for less than the amount owed to the mortgage lender. While this is a tricky situation, there are some benefits to be gained by everyone involved. Let’s take a look below.

What is the draw of short sales?

One of the major draws with a short sale is that the price is often pretty low. This is normally because the seller is in no position to pay for any repairs that might be necessary, and so the buyer is expected to absorb them. As such, many short sales are fixer-uppers, which means you can get your hands on more house than you might normally be able to afford. Just be aware that you should be willing to carry out some of the repairs yourself.

Can a lender lose money during a short sale?

There are no two ways about it: the lender stands to lose money during a short sale. However, they would lose much more money and time if the property went into foreclosure. This is what makes short sales a viable option.

Is short sales bad for buyers?

Short sales are often given a bad press, and buyers are typically advised to proceed with caution. While there are reasons why you might be better off looking for a different home, there are benefits to be reaped.

Is it cheap to sell a house?

Repossessing a home isn’t cheap, and lenders must pay numerous fees, including legal fees, which can mount up if the owner refuses to leave and the eviction process must be initiated. Even with the owner out, as the new property owner, the lender is required to pay taxes, maintenance costs, and perhaps even repairs to prepare it for sale, until it’s sold. By agreeing to a short sale, they avoid all of these costs.

What is a short sale?

Are you having trouble making your monthly mortgage payments and owe close to or more on your house than it’s worth? A short sale can be a great option for you! With a short sale, the lender agrees to accept less money for the house than what you owe. Banks are willing to do a short sale because they can usually sell the property for more through a short sale than at the foreclosure auction. But a short sale isn’t just a better option for the bank. It has many benefits for you, the homeowner, as well.

How long does it take to sell a house?

The short sale process can take anywhere from 2-6 months to complete, or even longer in some cases, depending on your lender and how fast they work. During this time, you can stay in the house completely free of charge. If you’re in a tough financial situation, this can be a great time to get back on track and start saving money!

Can a bank come after you for a short sale?

If your house sells for less than it’s worth with a foreclosure, the bank can come after you for the difference. With a short sale, the deficiency is almost always waived. You can walk away free and clear, assuming it’s a first lien only mortgage. Your mortgage will show a balance of $0, and the bank can’t seek any recourse. If there is a second lien, it will depend on your situation and the amount owed.

What is short sales?

Short sales are a bit odd. The selling agent is actually working for both the owner and the bank. The commission terms are often custom, and the seller may be getting a flat fee rather than a commission on the sale price. Buyers can (and should) attempt to negotiate with the seller to get the price down as low as practical. However, be aware that short sales attract cash buyers in many cases and money talks. Know what leverage you have. A pre-approval is a must if one is not planning to pay cash. Since the bank or banks get to decide on the sale price, the seller is in effect the bank. And oddly, the selling real estate agent will sometimes help to convince the banks to take an offer.

Why do banks allow foreclosures?

The bank allows for this type of transaction because they realize that the owner will otherwise default on the loans and the property will then be bank-owned and move to foreclosure. Lenders prefer not to have a property go to foreclosure.

Is a short sale a good way to add equity?

Unlike a traditional sale in which rising market value will be a key way for equity to be added, a short sale is a fast way to equity. Almost to a fault. You will need to do major repairs to most short sale properties and that equity can come from you if you are able to do some of the work yourself. A properly planned short sale will result in a healthy equity spike once the deal is finalized and the repairs completed.

Why are short sales profitable?

Short sales present a profitable niche to real estate agents who take the time to understand the process. Capitalizing on the growing number of short sales in many areas can help an agent stand out from other local agents, and it may create a new source of business in the face of a still-slow housing market.

What does a short sale do to your credit?

But a short sale will open the door to solutions for homeowners that can allow them to avoid legal action and the lengthy, laborious foreclosure process . Short sales can leave homeowners in a much more positive position, lessen their financial burden and salvage their credit to a degree.

What happens if you short sell a house?

Likewise, a short sale can drastically reduce the amount a bank may be looking to recoup from the homeowner. For example, if a short sale lets the homeowner sell a $200,000 home for $175,000, the bank will be much less likely to pursue a deficiency judgment.

Why is the housing market so saturated?

The housing market has been saturated with underpriced homes due to foreclosures, and finding buyers for many of these properties can be very difficult.

Why is a short sale better than foreclosure?

Contents. It can protect your credit. It can prevent a foreclosure. It can save you money. It can help your lender.

Can you short sell a home before foreclosure?

If you can short sell your home before it goes into foreclosure, your credit will take less of a hit. A foreclosure on a home adversely affects the homeowner in a number of ways, and it also has a negative effect on the lender and the housing market in general.

Is a short sale more manageable than a foreclosure?

Overall, a short sale is much more manageable for the homeowner than being at the mercy of a bank's attorneys during a foreclosure ...

Why do you need to short sell?

Selling short can also be used to provide additional risk protection for your overall investment portfolio.

What is short selling?

Summary. Short selling is a strategy designed to profit from the price of market-traded security going down, rather than up. Many investors are confused by the concept of short selling, but its essential working is the same as for any stock trade – the trader profits when his selling price is higher than his buying price.

What does it mean to short sell a stock?

Short selling is the practice of selling borrowed securities – such as stocks – hoping to be able to make a profit by buying them back at a price lower than the selling price. In other words, when you sell short a stock, you’re looking to profit from a decline – rather than an increase – in price. Selling short follows the old stock trading adage ...

What happens if your buy price is higher than your sell price?

As long as your buy price is below your sell price, you profit to that extent; however, if your buy price is higher than your sell price, you lose money.

How to sell something you don't own?

The way that you can sell something that you don’t own is by borrowing it . When you want to sell short, in order to get the shares to sell, you borrow them from your broker. Margin Trading Margin trading is the act of borrowing funds from a broker with the aim of investing in financial securities.

Why do you need to borrow money from a stock broker?

The purchased stock serves as collateral for the loan. The primary reason behind borrowing money is to gain more capital to invest. – a very simple process with most brokerage firms. The “margin” refers to the security deposit that you put down with your broker as collateral for the borrowed stock shares.

What are the advantages of selling short with margin?

Since you can sell short with margin trading, only putting up a percentage of the total value of the stock you’re trading, you can make more money with a smaller investment.

Is a short sale a good option for foreclosure?

Short sales can be an excellent alternative to foreclosure, for both you and your lender. While there can be many benefits for the seller in a short sale, there are some specific challenges that any seller should be aware of. Getting a clearer picture of what the benefits of a short sale to the seller are may help you make a critical decision about your financial circumstances.

Can you sell a home in a short sale?

In some cases, the lender's approval of a short sale does not necessarily mean the lender relieves the seller of all liability for repayment of the entire debt. It is possible that you can sell your home in a successful short sale and still owe the unpaid difference, plus interest and penalties, to the lender (the deficiency). The lender may then seek a deficiency judgment against your for this difference. (If a court issues that judgment, it could be in effect for up to 20 years if not paid sooner.)

What does it mean when a short sale is done?

This is no small thing. A short sale enables homeowners to stay in the home until the sale is completed. A foreclosure forces homeowners to vacate.

Why do you short sell a home?

Here are a few of the benefits of a short sale for distressed home sellers, and why they might want to consider it over foreclosure: A short sale does way less damage to a homeowner’s credit report and credit score than a foreclosure. This means the homeowner will be in better shape to apply for a mortgage and buy a new home down the road.

What happens when a foreclosure is paid?

A foreclosure forces homeowners to vacate. While a seller typically pays all real estate agent commissions and other closing costs, in a short sale the seller pays nothing; the lender or bank foots the bill.

What documents do you need to submit to a short sale lender?

To assess whether to approve your short sale, your lender will require you to submit some paperwork, including your offer letter as well as a “hardship letter” explaining why you can no longer make your mortgage payments, along with financial documents such as income statements or medical bills to back that up.

How long does it take to short sell a house?

A short sale typically takes 90 to 120 days, or even longer.”. The reason for these holdups is that the mortgage lenders—which are stuck paying for closing costs that a seller would typically cover—will often counter with their own demands in an effort to raise their bottom line.

Does foreclosure affect credit?

For one, the foreclosure process typically happens very quickly, since lenders are eager to recoup the costs incurred by the unpaid mortgage. Foreclosure also negatively affects an individual’s credit score and credit report.

Is a foreclosure a bargain?

While foreclosures can also be bargains, buyers should know that they come with a lot more risk than a short sale. For one, keep in mind that a foreclosure home is sold at a courthouse, sight unseen.

What is short selling?

Short selling flips the old adage: buy low, sell high. Anticipating that a stock’s price will drop, a short seller performs this action in reverse: first they sell high, then they buy low. The tricky part is that the short seller doesn’t actually own the shares they want to sell. You actually borrow shares of stock and then sell them in ...

What is the goal of short sellers?

Your goal as a short seller is to purchase the shares back for less cost in the future and net a profit. If the market value of the shares increases during the period when you’re borrowing them, however, you can suffer serious — even unlimited – losses.

What happens when you short a stock?

You are also at risk of the company taking a corporate action while you are short the stock.

Why are short positions important?

They keep the market healthy by providing liquidity at times when the market badly needs it. Because a short position is the opposite of a long position, many features are the reverse of what you might expect. In particular, when short selling, the potential profit (rather than the loss) is limited to the value of the stock, ...

What happens if you short a stock on the day before the ex-date?

If you are short the stock at market close on the day before the ex-date, you will owe the dividend. This means it will be deducted from your trading account and paid to the owner of the shares. When shorting 100 shares with a dividend of only a few cents per share, this may not seem worth mentioning.

What happens when you buy a short sale?

When you buy a short sale, you are usually buying the property ‘as is.’. The bank is already losing money on the property, so they will not usually make concessions for these maintenance issues.

Why is short sale a risk?

Short sales present another risk because the lengthy short sale process could cause you to miss out on other potential purchases. With all your time and resources tied up in short sale negotiations for months, you could miss out on an even better investment opportunity.

What to do before short sale?

Before getting involved in a short sale, you should always verify that the seller has been approved by their lender for one. If they have not, you could be wasting your time or could become involved in a process that will draw on for months or even a year. 7. Lenders Prefer All Cash or Large Down Payments.

What is the risk of short selling a house?

Another risk of a short sale is losing out on the property to an all-cash buyer or a buyer who is able to put down a large down payment . When agreeing to a short sale, banks and other lenders prefer to deal with these types of buyers.

What are the risks of short sales?

Learn seven risks of a short sale so you can plan properly and decide if it could be the right investment for you. 1. Long Process. Short sales may not be the best choice for those wanting or needing to purchase a property quickly. Getting a short sale approved can be a long process .

Is short sale a good investment?

Updated August 20, 2019. Buying a short sale can be a great opportunity to get a property at a reduced price, but it can also have its disadvantages. Purchasing a short sale is a more complicated process than a typical home sale, so there are some unique risks involved when investing in this type of investment property.

Can a lender accept a short sale offer?

Even if a seller has already been approved by their lender for a short sale, there is no guarantee that the lender will accept your offer. They may believe your offer is too low. If this is the case, the lender may counter your offer, flat out reject your offer or they may not even respond to it.