A short sale happens when a person or company is owed money when a property sells (also known as a lien), but the price the seller can get for the property doesn’t provide enough money to cover the amount owed. Most of the time, short sales happen as an alternative to foreclosure. Here are some helpful things to keep in mind about short sales:
- There’s nothing short about a short sale, except the lienholder(s). Sellers attempting a short sale must obtain an offer from a buyer, submit the offer with an application package, and get the lienholder(s) to approve settling seller’s debt for less than the seller owes. The application and approval process can take weeks or months, and typically the formal escrow period doesn’t begin until after the lienholder has provided written approval of the short sale.
- Sellers may behave strangely because they’re not getting any money from the sale. Since they’re not usually trying to maximize the sale price, they may do things that ordinary sellers would not do. It’s common for sellers on short sales to list at a very low asking price and ask for offers subject to a future interior inspection, where buyers don’t get to see the property before submitting the offer. They do this to get an offer they can submit as part of the short-sale application package with as little headache as possible. They may also post ugly photos or only photos of the exterior for the same reason.
- Short sales have extra uncertainty because someone other than the buyer and seller also has to agree to the terms after the buyer and seller agree. Because any lienholder could deny the application for a short sale, it’s possible that there won’t actually be a deal in the end. The lienholder(s) might decide that foreclosure is a better option (rare), or they might decide that the seller really does have capacity to pay and therefore is not a candidate. Also, because application processes vary a lot, it’s tough to know how long it will take from getting an offer accepted to the time it will close. Finally, the lienholder(s) may only approve a short sale at a higher amount than the offer originally submitted, and the new may come after weeks of waiting during the application process. In a case where the short sale is only approved at a higher price, the buyer can cancel if they aren’t comfortable with the new price.
