Video:What is a Short Sale

Transcript:What is a Short Sale

Hi. My name is Leanne Goff with Walnut Realty in Boulder, Colorado and I am here with About.com to talk about what is a short sale. A short sale is when a seller needs to sell their home and current market conditions will only allow them to sell for less than their loan value.

A Short Sale Can Occur for a Variety of Reasons

A short sale is also a better alternative than foreclosure or bankruptcy because you come to the bank and you honestly tell them that you are having hardship and you are doing your best to make good on the commitment that you made. There are a lot of reasons why a short sale might occur. One instance could be that the surrounding property in the neighborhood has devalued because of foreclosures or other situations that are arising in today's current market.

Another reason that it might occur is that the homeowner withdrew more equity than what the home was worth for a cash out, re-fi, or a heloc. Historically short sales have been difficult to close because they do take a long time to go through the system. We are finding that banks are ironing out their procedures, they are becoming easier to close. A short sale can close in as little as a few days, but on average will take 8 - 12 weeks to close, maybe longer.

Work with Real Estate Agents Experienced in the Short Sale Process

With short sales we have also seen some pricing that is ridiculously low. The listing agent is creating a bidding war where they drop the price so low that it entices a large audience to preview and make offers on the property. When you want to buy a short sale be sure to find an agent that has experience working in this market. Ask them questions about how many deals they have closed in a short sale situation, what banks they have worked with and what banks were the easiest to work with. It's a good idea to ask you agent to check the public record for the loans that are filed on the property. This will give you a good overall idea of how much is owed, and how many loans are on the property.  It's always easiest to close a short sale when there is only one mortgage. But we often find there is two, and sometimes three.

A Short Sale Package Consists of Crucial Documents

An effective short sale package consists of a seller's tax returns, hardship letter, payroll stubs, the financial statements, w-2's, and bank statements. The reason why the bank needs the hardship letter, the w-2's and the bank statements is that they need to confirm the situation that the seller is in and why he can't fulfill the loan that was signed. One of the best things you can keep in mind when making an offer on a short sale is that a bank will not accept an offer within 50 percent of market value, you have to make an offer that is reasonable considering market conditions.

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