5 Tips for Selling Your Home As a Short Sale
Property owners who are behind on their payments may think that their only choice is to foreclose on the home. But there are more options than this last resort. A short sale can be the key to salvaging the situation, especially for sellers who want to protect their finances in the long-term. Learn more about how these sales work, what the lender requires, and how a real estate agent facilitates the process.
Know the Perks
The first tip for sellers is to learn the benefits of the sale. While it may be more effort than simply walking away from it all, taking the time to arrange a short sale will typically help the seller protect their credit score. The exact hit to a person's financial reputation will depend on how many payments have been missed and whether a lender labels their debt as either paid or settled, with the former being the best possible option.
Sellers have the ability to negotiate with their lender at this time and make specific requests to keep their score from taking a plunge. Finally, sellers can also request a waiver that will include both a lowered settlement agreement and a release from liability after the transaction is complete.
Sellers Must Ask Permission
As great as a short sale might sound, the seller can't just decide to short sale their home. Sellers can only do so after they've received their lender's approval. Because a lender is generally going to receive less than the owed debt, not all lenders make the concession to the owner. To qualify for a short sale, owners may need to provide proof of their inability to pay, which may mean explaining personal struggles that led to the circumstances.
The main reason why lenders allow short sales in the first place is because it takes a lot of time and effort to sell a home for a good price. Lenders may sell the property in an auction, regardless of what it might have received on the open market.
Sellers Should Calculate Finances
The main thing for a homeowner to remember is that they're taking on no small degree of work for a short sale. Lenders will want to see the owner's finances, clarify whether there are any additional liens on the property, and submit a market analysis that shows the projected value of the home. Lenders will look for any way to offset their losses, so the owner must be prepared to leverage their assets in any way they possibly can—even if that asset is simply time to devote to the details of the sale.
Study the Process
In a short sale, the process typically goes as follows:
- Seller asks permission from the lender
- Seller negotiates specific terms with the lender
- Owner can then list the property for sale after terms have been reached
- Sellers are (usually) required to work alongside a real estate agent
- The agent will serve as an intermediary between lenders and sellers
- The agent will present offers to lenders for final approval
- If the seller has a second mortgage, both lenders will need to approve the final offer
A short sale may imply a fast sale, but the whole process can easily take months before all parties are satisfied.
Real estate agents should ideally have as much experience with short sales as possible for sellers to walk away with the best possible outcome. As mentioned, these sales are time-consuming, especially when there's more than one lender involved. It's crucial for the agent to set the stage for buyers, so the home has its best chance of going for as much money as possible.
Sellers should also be checking state laws regarding the short-sale process. In some cases, the lender will find a seller months later to request additional funds—funds that the seller wasn't even aware that they owed. Under state law, it's permissible for lenders to ask for money still owed on a short sale.
Finally, buyers are generally more amenable in a short sale because they're usually securing the property at a discount. The biggest hurdle is financing, because the buyer won't be able to lock in a rate until the final offer is approved. If rates rise dramatically, this can quickly end the sale in the final stages.
Lenders rarely ever advertise the short sale process, and instead wait for owners to approach them regarding the terms of the debt. The good news is that sellers do have some degree of power in this situation, and a little negotiating savvy can make all the difference.