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:
Behind on mortgage payments
Upside down loan
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.