Today's media tosses the words "Short Sale" around like the childhood game of "Hot Potato". Every day, on every major network, there seems to be a new report on the "Housing Crisis" and new efforts to aid struggling homeowners.
"Short Sale" seems to be the automatic assumption and term of choice. It is also the most widely misunderstood term in real estate.
The general public (and yes, even some real estate professionals) are operating under false impressions regarding Short Sales. They have heard the statistic that on average, every foreclosure will cost the lender over $50,000. They have heard that very large lenders are "going under" because they are suffering huge losses in defaulted loans, and they have now heard the term "Bail out" too many times to count.
All of this (true) information gives the (false) impression that lenders will do anything to prevent foreclosure. Signs are now advertising "Short Sale" on the property like a badge of honor. Investors and homebuyers are actively seeking Short Sale properties, wanting to profit from the lender's "huge" loss.
In reality, the term "Short Sale" should be abolished, and replaced with it's definition: "Market Value Sale". This is the more appropriate (and accurate) term for this type of transaction. The "Short" part of the sale is the difference between the current fair market value of the property, and the amount the Seller owes on the loan balance. The lender will appraise the property and accept offers as close as they can get to the fair market value. Typically lenders will not accept less than 90% of the property's fair market value in a Short Sale.
Not quite the "steal" the Buyers were looking for, eh?
Statistically, 85% of Short Sale deals do not Close because the Buyer misunderstands the timeframe, requirements, and even the real meaning of "Short Sale". If we all begin saying "Market Value Sale" instead, perhaps we could "de-bunk" the Short Sale myths out there and actually close these sales.
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