Question

In: Operations Management

Explain, what are the risks and rewards to a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent of a Buyer buying a property from a short sale.

Explain, what are the risks and rewards to a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent of a Buyer buying a property from a short sale. 

Solutions

Expert Solution

“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.”

  1. 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.
  1. 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.
  1. 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.
  2. 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


Related Solutions

Explain, what are the risks and rewards to a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent of a Buyer buying a REO property.
Explain, what are the risks and rewards to a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent of a Buyer buying a REO property. 
1. Explain, what are the risks and rewards to a a (i) Buyer (ii) Seller (iii)...
1. Explain, what are the risks and rewards to a a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent a Buyer buying a Note (Promissory Note). (4 points).. Please site sources and be detailed.
Is a contract for the sale of real estate assignable by the buyer if it provides for credit from the seller to the buyer?
Corey sold his property to Greer, who assigned the contract right to Bob. The original contract of sale provided for an extension of credit by Corey to Greer and did not require a total cash payment at the time of closing. Is a contract for the sale of real estate assignable by the buyer if it provides for credit from the seller to the buyer? Explain.
Buyer and Seller entered into a written agreement for Buyer to purchase real property, which property included a home, from Seller.
 Buyer and Seller entered into a written agreement for Buyer to purchase real property, which property included a home, from Seller. Under the terms of the purchase agreement, the risk of loss "shall remain with Seller until delivery of title." The purchase agreement was entered into on May 15 and called for closing on June 1, though the agreement did not say that time was of the essence. Seller chose this date for closing, in part, because that was the...
1. Write short notes on: i) Progressive Taxes ii) Regressive taxes iii) Proportional taxes iv) Real...
1. Write short notes on: i) Progressive Taxes ii) Regressive taxes iii) Proportional taxes iv) Real GDP
In Toxicity and Hypersensitivity, What are the differences between Types I, II,III, and IV hypersensitivities including
In Toxicity and Hypersensitivity, What are the differences between Types I, II,III, and IV hypersensitivities including why they occur and cells (mechanisms) they utilize
Explain the following in relation to antiretroviral therapy: i. Pharmacodynamics ii. Pharmacokinetics iii. Pharmacogenomics iv. Drug...
Explain the following in relation to antiretroviral therapy: i. Pharmacodynamics ii. Pharmacokinetics iii. Pharmacogenomics iv. Drug availability during contraception use and pregnancy v. Drug-drug interactions during treatment
explain the following Neurotransmitters: i. Serotonin ii. Histamine iii. Dopamine ( 5 marks each ) iv....
explain the following Neurotransmitters: i. Serotonin ii. Histamine iii. Dopamine ( 5 marks each ) iv. Glycine v. Glutamate vi. Gama amino butyric acid (GABA) vii. Nitric oxide (NO)
Explain about the following (i) Ordinary shares (ii) Preference shares (iii) Cost of capital (iv) Weighted...
Explain about the following (i) Ordinary shares (ii) Preference shares (iii) Cost of capital (iv) Weighted average cost of capital (WACC)
Explain the following briefly: i) Potential ordinary share ii) Ordinary share iii) Financial instrument iv) Equity...
Explain the following briefly: i) Potential ordinary share ii) Ordinary share iii) Financial instrument iv) Equity instrument v) Options, warrant and their equivalents State the double entry for the following: i) Pre-acquisition dividend ii) Post-acquisition dividend iii) Impairment in associate iv) Provision for unrealized profit v) Depreciation of plant
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT