The short sale has become an increasingly popular real estate tactic in recent years. But what is a short sale and how can a home buyer use it purchase a new home? These are the questions we will answer in today's article.
First, let's start off with a basic definition of the short sale as a real estate selling strategy:
Short sale - (noun), A real estate sale where the sale price is less than what the seller still owes to the lender via the mortgage loan.
In other words, the seller will sell the home for less than what he or she owes to the lender, and the lender will agree to accept this amount from the homeowner and "forgive" the remainder still owed. That is the basic definition of a short sale in real estate terms.
A Way to Avoid Foreclosure
The question most people have is this. Why would a lending institution accept less than what it is owed from a homeowner. Don't they lose money that way? Well, yes and no.
You see, the short sale is most often used as a way to avoid foreclosure on a home. As the name "short sale" implies, it's a way to sell the home quickly when the homeowner is in financial trouble and facing foreclosure. Thus, the short sale is one of several ways a homeowner can avoid foreclosure on the home.
Mortgage lenders will also want to avoid foreclosure, as much as possible. Lenders are in the business of loaning people money -- they are not in the business of managing properties, marketing them, selling them at auction, etc. These cost the mortgage lender money they don't want to spend. And that's why they often agree to accept a bit less than what is owed to them, as long as the homeowner can sell the home quickly by way of a short sale.
By listing the home below its market value, it's a safe bet that the home will sell quickly. And this is where the home buyer comes into the picture.
Tracking Short Sales for Home Buying Purposes
Many real estate investors keep track of homes going into foreclosure, because that is the first step to buying a home through a short sale (and possibly paying less than market value).
So whether you intend to live in the home, or turn around and sell it for a profit, it's always good to buy a home for less than market value! And who doesn't like to save money?
The key here is to know about a real estate short sale and/or pending foreclosures as soon as possible. After all, you won't be the only one trying to benefit from the reduced price of a home sold through a real estate short sale technique ... there will be others out there looking as well.
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