With many Americans facing the very real threat of foreclosure, many are looking for ways to avoid it. One option, and a topic that has garnered a lot of industry interest as of late, is a real estate short sale.
Normally reserved for stocks and other finance-related transactions, short sales are becoming an increasingly popular, and common, foreclosure avoidance tactic for homeowners.
To help understand how a short sale would relate to, or differ from, a foreclosure, it may be helpful to point out that short sales can also be referred to as “pre-foreclosure sales” which, as the name implies, precedes the home being officially repossessed or foreclosed on by the lender. That is, the property is sold much earlier than the months it typically takes to reach foreclosure, allowing all parties to move on from the transaction sooner.
It should be noted that there are still negative ramifications for short sales, even if less damaging than those associated with foreclosures and/or bankruptcy. For example, a short sale homeowner’s credit will still be adversely affected by settling with the lender. In fact, according to an article by Elizabeth Weintraub on About.com, the effects on credit are about the same for short sale and foreclosure and could drop a sellers overall score by as much as 200-300 points.
However, short sales do carry less negative effects than foreclosures. Short sale sellers are widely seen as less risky than foreclosed sellers. Case in point, Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another primary residence, while they extended the waiting period for foreclosures to five years. Fannie Mae Guidelines
At its best, a short sale can be a win-win for both parties. For the seller, a short sale provides the opportunity to avoid foreclosure and the dreaded implications that a foreclosure brings, in addition to being able to return to home ownership sooner; alternately, the lender receives most of the value of the loan sooner, and avoids incurring additional legal or carrying costs while the foreclosure process plays out, which can sometimes even take years. And, frankly, short sales are great options for savvy buyers - but these buyers need to not only be looking for a bargain, but have the time and skills to negotiate effectively as well. See "Buying Short Sales".
The net-net of this topic – short sales do present a better option for distressed sellers than foreclosures. However, it is neither an easy or short process, and sellers should seek thorough legal and tax advice when considering this route.
Editor’s Note: Short sales and preforeclosures are two home types that constitute a growing subset of bargain homes that also includes properties referred to as “distressed” and “auction” homes. Consumers looking for deals should investigate this entire subset of the market, especially if they are handy with home improvements and/or are looking for a fixer-upper property.
Whether you're in the market for a new home or considering selling your existing home, chances are you've heard of a short sale. Short sales are becoming increasingly common in parts of the country where home values have dropped substantially. Short sales can benefit those sellers facing the prospect of a foreclosure as well as buyers looking for a deal on their next place to live. However, short sales can also be tricky, so understanding how they work is essential.
What's a Short Sale Anyway?
In a short sale, a seller facing the threat of foreclosure enters into an agreement with their mortgage lender to accept a price for the property that's less than the amount they actually owe on it. The seller makes no profit on the sale but avoids many of the problems that would come from a foreclosure.
Possible Advantages
With a short sale, sellers avoid having to go through a lengthy foreclosure process and prevent the impact of a foreclosure on their credit score. In a short sale, the seller and the lender work together to determine the details of the agreement, but typically sellers who complete a short sale also avoid owing the balance of the loan.
The biggest advantage to buyers is clearly the prospect of moving into a new property at a great discount. Moreover, buyers may find that short sales have an benefit over foreclosures too, since unlike a foreclosure, there's not much of a risk that the buyer will need to take action to remove the seller from the property.
Of course, mortgage lenders can benefit as well. With a short sale, lenders don't have to worry about getting involved in a long foreclosure process. More than anything else, lenders want their money back, and they generally want to steer clear of taking responsibility for selling a home. So, a short sale can actually save them time and money.
Potential Pitfalls
Sellers considering a short sale must understand a few important things. First, not all lenders will offer to relieve the seller of the responsibility of paying off the balance of the loan. So, sellers should get a solid commitment from lenders that states this is part of the deal. Also, though the seller is avoiding a foreclosure, even a short sale may affect their credit score to some extent. So, sellers should discuss this issue with their lender to figure out how the process will be reported to the credit agencies.
Most importantly, not all sellers even qualify for entering into a short sale. For example, few lenders will even think about entering into a short sale agreement with sellers who have not yet missed multiple payments. So, if you're a seller thinking about a short sale, you'll want to talk to your lender about the options available. Buyers need to be wary too, since getting a deal on a short sale is not as easy as it may sound. In fact, there are some extra steps that buyers need to take when entering into a short sale, which can require doing some additional homework and assembling the right paperwork. For a guided tour of this process, see the ten steps to buying a short sale.
Of course, if you're a buyer considering entering into a short sale, it would be wise to consult a real estate professional who can answer your questions and help you navigate the process. This way, you can be better prepared to pull together all the appropriate information you need to complete the transaction and move into your new home.
AOL Real Estate / Zogby Survey Finds More than Half of Americans Still Believe the Dream to Own a Home is Attainable
Survey Probes American Views on the Constantly Evolving Real Estate Market
Dulles, Va., April 22, 2008 - According to a survey from AOL Real Estate and Zogby International, more than 50% of Americans believe the dream to own a home is still attainable for most citizens, while 43% of Americans surveyed said they spend more than 30% of their household budget on housing, which according to the U.S. Department of Housing and Urban Development (HUD) indicates they are "cost burdened." These are just some of the many findings from a new interactive survey of Americans age 18 or older that investigates how Americans view a wide range of real estate issues - from home ownership to housing costs, financial concerns and shopping for a home.
"The real estate market is constantly evolving and it is more important than ever for home owners and buyers to research and understand their local market dynamics before making decisions," said Alan Steel, GM of AOL Real Estate. "As our survey results show, the Internet is an essential resource and the first choice for buyers, sellers and renters who are seeking information."
Other top-line survey findings include:
Are Americans House Poor? With so many Americans using a large percentage of their budget for housing, the survey found that 22% of participants would lose their house or apartment with an unexpected short-term job loss and 30% are working paycheck to paycheck to cover housing costs. Additionally, 30% of Americans know someone who has gone through or is being forced to sell their home due to a foreclosure.
American Views on Home Values Despite the troubles some Americans are facing, 31% of participants feel their home is worth more than it was a year ago and 56% do not think their home will be worth less in five years. This optimism continues with 69% of Americans seeing real estate as a viable investment. If forced to sell their home today, half would buy another home rather than rent; roughly half of Americans would seriously consider purchasing a home through a foreclosure listing.
How Americans Search for Homes When looking for a home, 67% of Americans surveyed turn to the Internet first. In addition, communities with low crime, high-quality schools, recreational facilities and an easy driving commute to work all are key factors that influence a home purchase, with some Americans willing to pay a premium on top of their housing to reduce their commute time by half. Additionally, 83% of participants value the local media's coverage of crime in specific communities and cite the coverage as a major influence into where they would purchase a home.
The Value of Home Improvement For those who are not interested in selling or purchasing a home this year, 16% say they are planning a major home remodeling project, such as putting on a new addition. They believe that making any type of home improvement can increase the value of their home in today's market.
The full survey results can be found at AOL Real Estate . The AOL Real Estate site offers a comprehensive collection of home and apartment listings, real estate information, tools and real estate advice for buyers, sellers, renters, investors, people planning on buying a vacation home or even current homeowners.
Survey Methodology Interviewing for the AOL Real Estate-Zogby International survey was conducted among a national sample of 6,678 adults ages 18 and older. Interviews were conducted February 15, 2008 through February 18, 2008. Members of the online Internet panel were recruited by Zogby. The margin of error is plus or minus 1.2 percentage points.
About AOL AOL is a global Web services company that operates some of the most popular Web destinations, offers a comprehensive suite of free software and services, runs one of the largest Internet access businesses in the U.S., and provides a full set of advertising solutions. A majority-owned subsidiary of Time Warner Inc., AOL LLC and its subsidiaries have operations in the U.S., Europe, Canada and Asia. Learn more at AOL.com.
About Zogby International Zogby International is a public opinion, research, and business solutions firm with experience working in more than 70 countries around the globe. Founded and led by John Zogby since 1984, Zogby International ranks as one of the industry's leaders thanks to its reputation for superior accuracy and reliability. Zogby specializes in telephone, Internet, and face-to-face survey research and analysis for political, corporate, non-profit, and governmental clients. The firm is headquartered in Utica, New York, with offices in Washington D.C., Miami, and Dubai, United Arab Emirates.
Contact: Chris Savarese AOL Corporate Communications 212-206-4589 chris.Savarese@corp.aol.com
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
Kendra Barnett (AOL Real Estate)
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