The worst days of the housing crisis are finally over. Foreclosures have decreased and the market is beginning to recover. However, there’s still one lingering effect of the crash that buyers can take advantage of: the short sale. Granted, the term is a bit of a misnomer—it is often a long and tedious process. But for buyers with the time to spare, it can be worth the wait and extra work.
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Short sales usually involve homes selling for below market value. But Mary Alice Ruppert, the branch manager for Coach Realtors in East Islip, said even the notoriously long timeframes are starting to speed up. “Due to great training for realtors and bank improvements to their short sale processes, short sale transactions are better understood, quicker to close and we are seeing more of them attaining closed status,” she said.
The big difference between these and regular transactions is they involve the seller’s mortgage lender. This happens when a seller is in financial distress but can’t sell the property for the price they bought it for, meaning they can’t pay off the mortgage. If the homeowners can prove sufficient financial hardships, the lender might approve a short sale. The lender loses money, but gets the debt off the books and is able to move on.
The catch is getting that bank’s approval. It’s what takes so much time and why short sales aren’t for everyone. “If you say, ‘I need to close by December 15,’ there’s no short sale for you,” said Kevin Leatherman, the broker/owner of Leatherman Homes in Rockville Centre. “This is a process. There’s no guarantee for how long it will take. Five months is kind of an average number. One might close in four months, but one could take nine.”
The complication for the buyers is if they provide a down payment. With that money in escrow, buyers may not be able to move on other properties, holding up their search while they wait. Also much like a foreclosure, short sales are sold as-is; there’s no negotiating with the seller to fix
For home shoppers looking to save money, the advantage of short sales is waning. As the housing market improves, demand is growing for a limited supply of homes and even short sales are creeping closer to actual asking prices. “Because of the strength of the market, both foreclosures and short sales aren’t selling for as much of a discount as they were two or three years ago. The market is driving up the prices because of the lower inventory,” Leatherman said.