Read Fundamentals Behind a Short Sale in Real Estate
You have probably heard the phrase “real estate short sale” and wondered what it meant. If you read the newspapers, or turn on the TV and the odds are high that you will come across stories about declining real estate market conditions and the increasing willingness of banks and other financial institutions to consider real estate short sales as an alternative to foreclosure. Throughout the country, the prices on real estate have dropped and the time that is required to make a sell is on the rise. Throughout the country the crisis is so bad that many places are experiencing what is fair to call a market meltdown. This type of real estate atmosphere is the primary reason for needing an increase in short sale real estate opportunities.
What is a short sale, you might ask? A real estate short sale is the name given to the process where banks allow properties to be sold for less than the amount owed to them. Banks typically want two qualifiers to be met before they agree to the sale. The first condition is that market values must be in a state that the property’s sale price cannot cover the outstanding balance on the mortgage. A further condition is that the owners of the property must not be able to continue making mortgage payments on the property.
Let’s look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. The owners decided two years later that they needed a second mortgage of 10,000 dollars, bringing their total to 227,000 dollars. Also, we have to remember that in five years, the amount of time that the mortgages have been paid off is negligible. In the same amount of time, the market values for similar properties are going for 215,000 dollars, while the adjustable rate has risen from 7 percent to 11 percent. We’ll also add the fact that one of the owners has just lost his job and it should be apparent that a real estate short sale situation is apparent.
A foreclosure costs a lot of money and time delays that the bank may not want to waste, and thus, they might allow a short sale instead. It’s better to accept a definite amount of money right away, so that the property can be off the bank’s book, than to accept an unknown amount at a distant point in the future. The process can occasionally become complicated, particularly if the owners and the lenders reach an stalemate when it comes to agreeing to terms, but overall, that is how a real estate short sale works.
While a real estate short sale is an unfortunate and unpleasant experience for an owner forced to go through the process, it’s not the end of the world. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. On the other hand, a truly savvy investor can take advantage of these short sales for excellent buying opportunities.
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