The Williamsburg Real Estate Blog

It seems like almost everyday now someone asks me about Short Sales.  Most people don't understand what they are, nonetheless how to go about buying a home involved with one. 

The way that a short sale works is that the Seller of a home negotiates with their lender a mutually agreed upon price to sell their home that is lower than the balance due on the mortgage.  This is a tactic used to prevent a costly foreclosure for the Seller and the Lender (mortgage company).  Many people find it difficult to believe that a Lender will negotiate such a deal, but those same people don't realize the expense that the Lender must incur to repossess the home.

This can be a very useful method of selling property where a Seller is "upside down" on a house.  In other words, the Seller owes more than the house is worth.  I'll put some numbers here in an example...

The homeowner owes $250,000 on a home that is currently worth $230,000. 

The total cost of the foreclosure to the bank is estimated at $50,000. 

The bank may be willing to allow the Seller's Realtor to market the home a price around $215,000 with the theory that losing only $35,000 is better than spending $50,000 in a foreclosure situation.

So, as you can see there is a considerable margin involved with a Short Sale that must be evaluated carefully by any prospective Buyer.  Many people are throwing the term "Short Sale" around right now and a lot of Buyers automatically think that they are good deals.  In general they are, but in some cases the margin between Market Value of the home and the balance of the loan is so great that even choosing the route of a Short Sale can not overcome the difference.  In this case a Lender may contribute enough money to only partially make up the difference between the sales price and the balance of the loan. 

In "short", a short sale can be a last resort to avoid foreclosure.  It still will affect you credit score in a negative way and can even be weighed as heavily as a property foreclosure. 

If you see a home for sale in our area that is a Short Sale, give me a call and I'll help you evaluate the situation.