A short sale occurs when a seller can not sell their home for enough to cover the loan balance and the other costs, such as title policy, real estate commission, tax proration and other closing costs. When this occurs, home sellers must either have enough cash on hand to cover the difference or must negotiate an agreement with their lender to sell the home short “short sale” in order to consummate the home sale transaction.

Because of the decline in home values over the last several years combined with the weak housing market in general and also many home buyers’
use of 100% financing, it is not uncommon to see short sales in virtually every market in the United States. Some estimates are that as many as 12% of homes currently for sale in the United States are short sale transactions.

To home buyers, short sales present a number of challenges and risks. However, in many cases, buyers may be able to purchase a home below market value if they are willing to deal with the hurdles that most short sales require.

Here is a list of the advanages and disadvantages of short sale transactions that buyers should take into consideration before bidding on a short sale:

Advantages:

* Some homes sold as short sales may be offered below market price, meaning the buyer may be able to get a better price than they would buying from an individual owner. Since the cost of foreclosure is often in the tens of thousands of dollars, some banks will opt to allow a buyer to sell their home below market verus foreclosing on the property and taking an even bigger loss.

* Short sales do not have the same type of “bidding” process as many foreclosures. Likewise, many homebuyers are not willing to wait several months for the bank to give an answer, so home buyers that are willing to tolerate the potential wait of several months to obtian an answer may not have as much competition from other buyers.

Disadvantages:

* Some lenders may not agree to pay closing costs on the buyer’s behalf.

* The process that lenders take to approve a short sale may take up to several months. During this time, the buyer has no idea if the bank is going to approve the transaction.

* Some short sale properties may be in greater states of disrepair because the seller may have not had enough money to properly maintain the home.

* Once the bank approves the short sale, they may make their approval contingent on a quick close, which may force the buyer to close quicker than they are able.