Understanding Short Selling A short sale is a transaction in which the seller does not actually own the shares being sold, but instead borrows them from the broker through which they place the sell order. The seller then has an obligation to buy back the shares at some point in the future. In a short sale, the transaction profits are less than the amount the seller needs to pay off the mortgage debt and selling costs. To close this deal, everyone who is owed money must agree to receive less or possibly no money.
This makes short selling complex transactions that move slowly and often fail. The short selling process is a lot like buying a home off the market. Demonstrate verifiable financial difficulties Hire the services of a qualified agent The short selling process for sellers begins when they are officially informed of their inherent lack of funds to cover their predetermined mortgage obligations. In other words, a homeowner's imminent inability to pay their principal and interest in full each month is a telltale sign that a short sale may be in order.
However, it is worth noting that short selling is the direct result of increased difficulties and not a lack of payments. That's an important distinction, since short selling is voluntary; the landlord will request a short sale if the burden of paying their mortgage becomes excessive. Homeowners who don't actually pay their payments will be subject to foreclosure, a completely different process. When a lender approves a short sale, they agree to sell the property for less than the outstanding mortgage balance.
There are often challenges and delays when buying a home for short sale, which is why professional property developers and home sellers deal with a disproportionate number of short sales. A really good agent, who is well versed in the short selling process, can easily offset their cost with a higher selling price. While a short sale isn't the ideal scenario for either the bank or the owner, it's unequivocally better than the alternatives for everyone involved. That said, there's a lot of information you'll need to analyze for yourself to determine whether or not it's worth applying it to your own short selling strategy.
Some homebuyers choose to endure the complications of short selling because they could buy at a bargain price. There are three common obstacles that can make a short sale take longer than a traditional sale or prevent the transaction altogether. Only once they're sure that a short sale is best for them, will they continue with the process. If a short sale is not possible, the lender will simply seize the home when the borrower fails to make the payments.
Whenever the lender allows it, the seller will attempt to make a short sale to recover as much of the money they owe the bank as possible. However, contrary to popular belief, short selling is not bad at all; they are simply associated with an unfortunate situation. A short sale is different from selling your house at a loss because you won't pay any fees or commissions (everything is paid by the lender). Both short sales and foreclosures are processes that occur when homeowners have difficulty keeping up with their mortgage payments or if they discover that their mortgage is underwater.
For example, properties that are sold as a short sale often have some deferred maintenance and are therefore sold below market value. If it weren't for anything else, there are too many moving parts and decisions to make to be able to accurately estimate how long a respective short sale will last. .
