“A short sale in real estate is a sale where the revenue
received from sales of the property falls short of the outstanding
secured by a lien against the property.”
- Buyer: The benefit is the buyer sees is getting a property at a
lower cost but the buyer is at the most risk, as though he sees a
lucrative offer and a good buy.
There are unforeseen expenses as follows:
- Maintenance & Hidden expenses: There might be pending
maintenance costs, which seller couldn’t afford to pay. The
outstanding taxes should also be considered.
- Legal issues: In case of inherited property the seller might be
having title issues.
- Financial issues which might occur due to nonpayment of upkeep
and recurring expenses like electricity bills etc.
- Fixing plumbing, electrical, and structural issues with the
house; buyer should get a home inspection done before finalizing
the deal.
- The buyer has to deal with the seller and the lender of
mortgage (Bank). The entire process is time-consuming and you need
both parties to agree to your price. The foreclosure process is
also long and would take six to seven months as the bank is also
involved.
- The buyer should consider all above before making a short sale
purchase even though it might look good up front.
- Seller: The short selling look like an easy option to the
seller a she can get rid of the loan and start afresh. The
disadvantages are as follows:
- A negative credit rating will impact the buying capacity
- Banks won’t lend you finances easily due to a negative
history
- The approval process to short sell will be long and
tedious
- The lender may pursue and file a deficiency.
- The lender should release you from all liabilities by issuing a
no due certificate.
- Lender: The lending institution mostly a bank may agree to
short sell to recover the debts partially. The lender may not
recover the entire amount in short selling hence loosing in term of
finances. In case of buying a short selling property, you might not
get a mortgage from your bank that might not be willing to cover
your property value as the bank sees a risk in buying the
property.
- Real Estate agent: The real estate agent who facilitates the
sale normally for a percentage of sales but in a short sale, the
real estate agent won’t get his commission from the bank who is
already falling short of the debt owed. The seller is already in
debts and might not pay you. In short selling, the real estate
agent either recovers his share from the bank if the bank has
appointed him or the buyer, in case of the buyer has appointed him
to validate the sale.
To sum it up a short sale property is a long and tedious buying
of property which might entail a lot of risks especially for the
buyer, the seller benefits from sale by paying his outstanding,
real estate agent generally have a win-win situation as they ensure
they get paid for services by discussing and finalizing their terms
before the deal is made. The lending institution (Banks) secure
themselves from all sides, the buyer might be the person at maximum
risk and disadvantage.
Reference:
Short sales pros and cons for sellers