A short sale is a sale in which the net profit from a sale doesn’t cover the debts owed on the property-that is the loan is upside down. In this case, lien holders on a property will agree to reduce their total debt amount to help all parties terminate the debt and all interest in the deal.
A short sale presents an opportunity for a distressed homeowner (such as one behind on mortgage payments) to sell his or her home.
Listing a short sale is typically more difficult than a standard sale as an agent must balance the interests of the buyer, the seller, the agents, and the lender(s). However, this dual representation affords an agent the opportunity to make a higher commission, oftentimes 3-6% of the total sale.
In order to list a home as a short sale, a homeowner must qualify with one or all of the following:
General hardship
Income loss
Behind on mortgage payments
Upside down loan
Illness
Job Relocation
Job Termination
General hardship must be documented through bank statements, paystubs, tax returns, profit and loss forms (for self-employed borrowers), and other financial documentation.
An agent convincing a homeowner to do a short sale is not difficult, especially if he or she is behind on mortgage payments. An agent’s most difficult task is to convince a lender that the sale is in its benefit.
Lenders are in the business of making money and they avoid anything that may cause them a financial loss. When a homeowner/borrower becomes distressed, a lender typically has two options: foreclosure or a short sale. Foreclosures require a lender to hire a third party servicer, pay legal costs, and find and pay an agent. To avoid the hassle and additional fees that come with the foreclosure process, lenders may approve a short sale.
A short sale can rid both the lender and the homeowner of an unproductive partnership and help the lender avoid further losses. An agent must provide a lender with evidence that it will lose money with a foreclosure. This includes recently sold comparables that prove the property’s worth in the current market.
Short sales involve much back-and-forth communication between the agent and the lending institution. The hardest aspect of listing a short sale for an agent is getting into contact with the proper department and representative.
