Short Sales: Fact Vs Fiction – Sell Side

This is the second of my posts regarding short sales.  Here I will cover what one can expect as a seller in a short sale.  If you have questions regarding the buy side of a short sale please refer to my previous post or get in touch with me personally.  If you are unfamiliar with the process of selling a home as a whole, scroll to the top of the page and take a look at my “Preparing Your Home for Sale” page.  I chose to separate this post into the following three sections: Qualities that are similar to a general transaction, qualities that are different, and general facts to know about short sales.   

Similar to a normal transaction: 

1. Banks look at offers much in the same way an individual seller would.   Meaning a cash offer will be most viable, followed by conventional financing, and lastly creative financing or a home sale contingency.
2. The seller is still responsible for making the home presentable and accesible for showings.  Remember that despite the circumstances, our goal is still to generate the highest sale price possible.  This will aid you in getting out of the home by making the short easier for the bank to approve

Different from a normal transaction:

1. Even though you as the seller will negotiate the contract, the bank will make the final decision on acceptance.  It is crucial to have a professional aid you in initial pricing of property as well as negotiating the contract.  The last thing you want is to accept an offer only to have the bank reject it a month or more later.
2. Unlike a general closing, sellers will not receive a check at closing.  Moreover, the difference in loan value and purchase price has been considered income and the distressed seller would be on the hook to pay taxes on that amount.  There are currently plans to do away with this stipulation making the option of a short sale more viable for many borrowers.

Things to know:

1. Banks will take between 75%-90% of fair market value.   Due to a declining market and a lack of recent sales, the  issue in many situations lies in determining that fair market value.
2. There is no iron clad explanation as to exactly what the ramifications of short selling a property are as it may very from lender to lender.  What is clear is that in no case is a foreclosure the best option for a seller, the bank, or our economy.  In some cases, depending on the banks procedure, a short sale can do very little damage to one’s credit.  These are generally cases in which the borrower can prove some sort of hardship ( loss of job, death in the family, etc.)
3. In order for the bank to accept a short sale, the borrower must be able to prove that they can not finiancially fulfill the obligations of their loan.  In order to do so, be prepared to offer extensive financial documentation of your current situation.

Short sales are here to stay for the next few years at least.  My goal is to function as a valuable resource for my clients so please feel free to contact me if you have any questions regarding your personal situation or what you have read here.

Best,

JLC