Short sales have become a more familiar real estate option in the last few years. They can be a good way for sellers to avoid foreclosure and they can help buyers to get a break on their new home. Yet there are many misconceptions about short sales, and these myths can scare both buyers and sellers away from potentially good deals.
Myth #1: A short sale happens when a homeowner wants to sell quickly.
Despite the name, a short sale has nothing to do with selling in a shorter time period. In fact, short sales often take much longer to negotiate than a traditional sale (generally a minimum of three to eight months). A short sale is a situation when a bank agrees to accept less than the full amount owed on a home’s mortgage to avoid foreclosure. The “short” in the name has to do with the amount of money the bank receives, not on the length of time for the sale.
Myth #2: Homeowners have to be behind on their mortgage payments to qualify for a short sale.
Homeowners must meet certain criteria to be eligible for a short sale, but they don’t actually have to be behind on payments. They must show a financial hardship (a reason for not being able to pay), show that their home is worth less than they owe, and prove that they cannot afford—or will soon not be able to afford—their monthly payments. Accepting a short sale is at the bank's discretion, but homeowners don’t have to wait until they are in danger of foreclosure to apply for a short sale.
Myth #3: Banks would rather foreclose than accept a short sale.
The foreclosure process is expensive and banks often get back more of their money on a short sale than by foreclosing on a property. Many banks have been working on streamlining their short sale process and may even offer incentives to help qualified homeowners avoid foreclosure.
Myth #4: It’s too late for a short sale once the homeowner receives a foreclosure notice.
Having a short sale approved may become less likely as the property gets closer to foreclosure, but homeowners shouldn’t assume it’s too late. Banks look at each short sale application on a case-by-case basis and they may be willing to stop the foreclosure process if they think they will recover more money by accepting a short sale.
Myth #5: Short sales aren’t worth the effort and are almost always denied.
Short sales are more complicated than traditional home sales, but they are certainly a viable option. The deals which fall through are often denied because the sales process wasn’t followed correctly. Banks are working on making the short sale process easier, but your best bet is to work with a real estate agent who has plenty of experience with getting short sales approved.
Myth #6: All short sales follow the same process.
Whether you are a homebuyer or seller, you should learn as much as you can before getting involved in the short sale process—however, you also must be prepared for the unexpected. By accepting a short sale, the bank is waiving their right to money they are legally owed. They can deny the short sale for any reason, ask for conditions on the deal or try to renegotiate the sales price. Understanding what typically happens in a short sale doesn’t mean the process will be the same at every bank or in every situation. Having an experienced real estate agent on your side is the best way to navigate a short sale and understand each step of the process as it unfolds.