3 Short Sale Myths Debunked

It definitely is not surprising if you have grown to be familiar with short sale properties. With the real estate industry still suffering from the mortgage debacle, there is still a significant number of homeowners who are hoping to avoid a foreclosure with a short sale.

Times have certainly changed considering it was not long ago when the mere mention of short sale is enough to give someone an anxiety attack. It was not a common transaction and this could probably be the reason why, until today, there are still plenty of myths about short sale.

For your peace of mind, consider the following debunked myths:

1. Buyers interested in a short sale home can simply offer an amount below market value and the lender will accept it.

Although it is true these properties are sold at a discount, most lenders will still look at the home’s appraised value. You have to keep in mind these houses usually do not require major repairs and are only on the market because the owner is upside down on his mortgage. To be able to buy a short sale, you need to make a reasonable offer, one which is based on a comparative market analysis. In lay man’s term, you can simply check similar homes sold within the neighbourhood. Of course, you need to also know the home’s condition.

2. Short sale and foreclosed homes are the same.

Do not make the mistake of thinking these properties are one and the same. For starters, it would be worse to experience a foreclosure than a short sale especially since the former can lower your credit score by as much as 300 points. In addition, your financial credibility will suffer for the next three years. On the other hand, short sale will usually appear in your report as “paid as negotiated”. Although your credit score will still take a hit, it can be as little as 50 points.

3. Buyers who are willing to pay the asking/list price can buy the short sale home.

You have to understand that in a short sale transaction, you need the lender’s approval to be able to buy the home. In some cases, lenders are more than willing to accept short sale proposals but there are also cases when the lender will not approve the proposal because the seller failed to submit all paperwork. This is perhaps the reason many sellers work with a short sale Realtor to improve the chances of getting approved.

What to Expect After Submitting the Short Sale Proposal

After finally finding a serious short sale buyer and sorting through all the paperwork, making sure each of the lender requirements have been met, you are now ready to submit the short sale proposal. However, if you think that once you have submitted the proposal, you can sit back and relax, think again. You need to know what you have to expect after this step in the short sale process in order to make the necessary preparations.

There are several possible outcomes:

1. Short Sale Proposal is accepted. If the lender finds your proposal to be acceptable, you will need to notify the buyer immediately and proceed with the closing. Obviously, you will need to move out of the home soon so you also need to think about this and start looking for a place to move into. Soon after this you’ll need to start making arrangements for a place to move into.

2. Lender makes a counter –offer. This is still considered good news since it means the lender is willing to negotiate. You can respond to a counter offer by agreeing to the lender’s demand or asking for a re-appraisal to justify the initial offer, especially if the lender based the counter offer on an earlier appraisal. Also, if the lender is asking for upfront money, your short sale realtor should be able to negotiate this particular requirement.

3. Lender rejects proposal. In this case, you need to go over what went wrong. There are several reasons why a lender might reject a proposal. For example, a low offer, incomplete papers and absence of hardship. If there is time, you can re-submit your short sale proposal.

Whatever the outcome is, you have to be ready in order to avoid wasting time. Keep in mind you and your Short Sale Realtor are working overtime to make sure you avoid a foreclosure.