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The answer? Education. Education. Education.

Whether you are the seller, looking to list your home or a buyer looking to purchase, the most important thing you can do is educate yourself about the process. This current real estate market is full of short sales—so do not jump in without understanding what may be in store for you.

So what is a short sale? It is the sale of a property where the sales proceeds (after commissions, escrow costs and fees) are not sufficient to pay off the seller’s loan balance(s). In a short sale there just is not enough money to pay off the loan in full. Since the lender is not getting paid off fully, the seller must obtain the written consent of the lender(s)—and this makes for a process that ultimately affects both the buyers and sellers.

The Seller

Selling your home can be stressful. If you are facing a short sale—where there is often a job loss, reduced income or uncertain financial futures involved—this stress can be significant. If the current value of your home leaves you considering a short sale, please call an experienced short sale specialist. Many agents do not understand the tax and legal implications of a short sale. You do not want to sell your home and then find a very unpleasant surprise at tax time. Deciding whether to move forward with a short sale is a critical decision and you need expert advice. Tax consequences can change depending on such things as whether the home is your primary residence, if there is an equity line involved and whether you used those equity line funds to fix up the house or to buy a new boat or car. The decision to list your home in a short sale needs to be an informed one—so you do not jump out of the frying pan and into the fire. Get expert help. On a side note, do not avoid the decision and just let your home go into foreclosure—this could also result in an unpleasant tax surprise and ultimately leave your credit further damaged. The best thing you can do is to make an informed decision.

The Buyer

An understanding of short sales is just as important for buyers. The first question to ask yourself is do you have the time and patience for a short sale? Unless the short sale is preapproved (and very few are preapproved because banks will not assign resources to review the property until an offer is in on the property), a short sale generally takes significantly longer than a traditional sale. It is not unusual for one to take 30 – 90 days to get approval—depending largely on the bank and the agent. Banks just do not move quickly. If the listing agent is not on top of the transaction, it may move even slower. So if you are in a hurry or just do not want to wait the time it takes to find out if you really have a deal, then you may want to steer clear of short sales.

If you are willing to wait out a short sale, you may be able to land a good deal…but make sure you select an experienced short sale agent. If the agent does not submit the appropriate paperwork when the offer is made, you may unnecessarily incur significant costs (like paying for home inspections on a deal that does not and may never have lender approval). I have found that many agents are not familiar with paperwork specifically related to short sales and the ramifications can be costly to the buyer.

Short sales are a valuable option for buyers and sellers…but they should be considered carefully. If you would like more information on short sales, please give us a call or send an email.

Melinda email: johnsonlaw@sbcglobal.net Phone: (714) 863-5485