It is not uncommon for homeowners to find themselves in a financial bind when it comes to meeting the monthly mortgage payment. And when payments cannot be met, the dreaded foreclosure often is the result.
But short sales offer homeowners struggling to meet payments a life preserver, according to Karolina Baker, a Realtor with Rector Hayden.
“It helps the seller because they get to walk away with nothing, but they don’t have to pay any fees like they would in a foreclosure where they would lose the home, plus pay attorney fees,” she said. Baker added that short sales remain on a credit report for three years, compared to the longer seven years a foreclosure remains on the report.
Chuck Beaman, with Dennis King Real Estate and Auctioneers, defined a short sale as “... when the value of the mortgage is greater than the value of the property. Because of this, a seller requests his or her mortgage holder to accept less than the payoff on the loan.”
Beaman said the mortgage company has the final say.
“The mortgage company will also appraise the property to determine its market value,” he said. “Once these are completed and reviewed, the mortgage company may accept the contract terms, reject it, or ask for a higher sales price. Ultimately, in a successful short sale, the lender agrees to accept less payment than what is actually owed to them.”
A short sale also means that home-buyers can purchase a home for much less.
For example, between April 22 and Oct. 5, there have been 11 short-sale houses sold, and the buyers saved between $2,900 and $48,000 off the original listing price, according to the Lexington-Bluegrass Association of Realtors (LBAR) website.
As of Tuesday, there were 22 short-sale houses on the market in Jessamine County out of the 481 listings, according LBAR.
Effect on local real-estate market
While the buyer benefits from a good deal and the seller benefits by not going into foreclosure, something does have to give.
That something, according to Dennis King with Dennis King Real Estate and Auctioneers, is the Jessamine County market.
“It has a negative effect on the entire housing market,” King said. “Even if the appraisers don’t use those comparables, the buying public does. Therefore, it continues to keep driving prices down.”
King said he feels that short sales in Jessamine County have driven prices down by 10 percent.
Other drawbacks, King said, include the timetable on getting a deal done.
“Typically it takes 60 to 90 days, but we have had one that took us an entire year,” he said. “There’s so much documentation that has to be done, hardship letters that have to be written and approved by the lender. The seller has to be in agreement with it (offer), but the mortgages company has to be in agreement to it. So a buyer can make an offer and the seller accept it, but it’s contingent on the mortgage company, and every mortgage company has their own criteria, so we never know if it’s going to work or not.”
In addition, Realtors themselves may take a hit.
“It’s really difficult because you never know for sure what you’re going to get paid,” King said.
Baker said negotiating on a short-sale home is similar to trying to reach a deal on a normal listing, but there are a few differences.
It’s rare to get a seller to agree to pay for closing costs, and it is even more rare to get a seller and mortage company to pay for any needed repairs.
“Typically, short sales are ‘as is’ because sellers are not in a position to make any repairs and banks are not willing to take any more of a loss,” Baker said.
She added that does not mean short-sale homes are dilapidated and in great need of repair. Like many Realtors, Baker said she always advises the buyer to have a home inspection done to get a list of the house’s general condition before making a final decision.