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house with a sign for a short sale out front

Is Short Sale Right for Me?

When a property goes up for sale for less than what remains on the mortgage, then it’s considered a short sale. Lenders sometimes accept short sales when the property is worth less than what’s left on the mortgage or if the borrower cannot make their monthly payments. Homeowners generally sell their property in a short sale because it will reflect better on their credit score than if it was a foreclosure. Whether you’re a buyer or a seller, you should understand the advantages and disadvantages before considering a short sale.

What are the disadvantages of short sale?

If you’re a buyer, you don’t know what you’re getting into. A short sale may take longer than a traditional sale. It may also be difficult to have a definite closing date until the seller’s mortgage lender agrees to the terms and conditions. There may also be special assessment liens that require additional approval of the short sale. If you’re bound by a certain time period, avoid buying a short sale.

You’re also buying “as-is.” Due to the financial hardship, homes are usually in disrepair. If someone has a hard time making their mortgage payment, then they’re likely going to have a difficult time paying for home upkeep. There is no warranty in these situations.

As the seller, you might have to pay some money at closing or agree to an unsecured debt. This may be the only way to have your short sale approved. If you refuse, then the short sale may not be accepted, even if you accept the sale itself.

Don’t expect the lender to pay any fees associated with the short sale. They will also refuse to pay extra fees that the seller usually pays. This could mean higher costs for the buyer or the seller. If the seller cannot pay for these costs, they will naturally fall to the buyer. These are costs like inspections or repairs.

What are the advantages of short sale?

Don’t be discouraged! There are also great deals and benefits for both sides.

As a buyer, you’ll be purchasing a house at a fair market value. This means you’ll be buying the property for the actual value rather than an inflated cost. While you’ll have to pay fees associated with the home, it may still end up being a great steal.

It may also help you avoid scams. There numerous scams that involve the foreclosure market and they seem to be growing even more frequent. To avoid this, consider buying from a short sale. Like the homeowner, you’ll deal mostly with the bank or real estate agent rather than attorneys or auction houses.

As a seller, you’ll avoid a hard credit hit. While your credit will still be damaged from having to sell, it’s better than a foreclosure. While there’s a chance a lender may attempt to sue for a deficiency judgment, a short sale will decrease the chance. Lenders often reduce the amount of money owed and cut the losses.

It will also give you more control as a homeowner. The process of a foreclosure is long and extremely stressful. In short sales, there will be negotiations, meetings, and paperwork, but the process plays out similar to a traditional sale. You’ll also play a much more active role in the processes and deal mostly with the bank.

When should you consider short sale?

Ultimately, as a buyer or seller, it’s up to you. The advantages and disadvantages should be weighed based on what role you play. If you’re looking for buying, you should understand that the home will be sold “as-is,” but does the cost of repairs still provide you a great deal? If you’re selling your home, is it worth selling your home in a short sale even though you’ll have to pay additional fees? These questions can only be answered by you after you’ve weighed both options.