Advantages and Disadvantages of Short Sales

February 14, 2012

General Short Sale Info

In a layman’s language, we can describe a short sale as the situation where a home is sold to a new buyer a relatively lower price than the current or face value of the mortgage. This price is still lower than the face value even in addition to other costs such as the real estate agent’s commission, other sales and closing cost items such as the Escrow, title and any other related cost.

There are three parties involved in short sales. They include the seller of the house, the buyer of the house and the bank that had provided the mortgage loan for construction or acquisition of the house. Like any other financial transaction, short sales have advantages and disadvantages. However, the advantages outweigh the disadvantages in gigantic proportions.

The Advantages of Short Sales

  • The buyer of the home obtains a good house at a lower cost than the face value of the house in the market. It would be more expensive if the buyer were to go for a new house without involving short sales.
  • The homeowner enjoys a lot of responsibility and dignity during the short sales because the house is sold legally and they move out in a dignified way, unlike in the case of a property auction where the homeowner is evicted like a wild dog.
  • The bank involved stands to benefit from the short sales in comparison to a foreclosure because they involve the services of a qualified property investor thus saving the bank the time involved in closing the sales and an assurance of the best market price for the house despite the fluctuating prices.
  • The seller of the home also enjoys a good credit rating when compared to a foreclosure because he/she can qualify for another mortgage loan just after two years as compared to a foreclosure where the seller has to wait for seven years in order to qualify for a mortgage. It also improves the credit history when compared to someone who has never had a mortgage before.
  • In case there was a foreclosure notice that was reported, the homeowner has the option of delaying any action that may be brought against them in favor of the short sale. However, approval may take a period of up to three months in most cases.

The Disadvantages of Short Sales

As noted earlier on, the disadvantages of short sales are far much fewer compared to the advantages. We could have ignored them because they have very little weight when you calculate your steps carefully. However, don’t worry because we’ll look at them anyway:

  • It can be difficult to negotiate a short sale because of the number of parties involved from the side of the buyer when compared to the conventional method of selling the house. The parties at a glance are the seller, the seller’s agent, the first lender, the prospective buyer and his agent and loss mitigator of the first lender.
  • There are many hurdles you may meet in a number of States in order to qualify for a tax exemption while carrying out the transaction.
  • Generally, not each seller of the home qualifies for the short sales.
  • At times, some lenders may refuse to accept short sales in favor of foreclosures.

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