Frequently asked questions : “What’s a Short Sale?”
A question that I hear quite a bit while working with buyers in Lancater County is "What is a Short Sale?" These types of 'distressed sales' have become more common because of the market conditions over the past few years, so lets go over what they are and how to spot them while searching for your Lancaster County home on our website.
A short sale occurs when someone selling their home owes more on that home then it is worth and can't afford to bring the difference in cash to the settlement table. Basically, that seller would be going back to the bank and asking them to take less than what was originally promised in the mortgage note.
For example, Joe & Sally Smith bought a home in Lititz for $200,000 in 2006 at the height of the housing market and had taken out a loan for 100% of the purchase price. Now, in 2013 they would like to sell their home because Joe was laid off from his job and they're having trouble making their mortgage payments. Unfortunately, at this point, the home is only worth about $180,000, so even before closing costs they are going to be unable to pay off the mortgage with the proceeds from a sale.
Knowing that they would be unable to pay off their mortgage with the proceeds of the sale, and they don't have enough cash in the bank to make up the difference, the Smith's Realtor recommends that they pursue a short sale.
The short sale starts off like any other sale, waiting for the right buyer to come in and make an offer. Once an offer does come in, the bank will require a litany of documents from the seller to prove that they cannot afford to pay their mortgage any more. Putting this list of documents together can be one of the toughest parts of the whole short sale process.
After submitting the required documentation, the time line can vary widely on when the bank will respond. Sometimes, an answer will come back from the lender in 60 days, and other times, it will be much longer with little to no response from the bank.
One of the reasons that short sales have gotten a bad reputation for traditional homebuyers in Lancaster County and many other parts of the country is that the timing for short sales are so abnormal and unknown. The process could take several months from the initial offer to the lender accepting the offer, but at that point the bank might request that you settle in 30 days which is just not feasible for many buyers that are getting FHA or conventional financing.
The only saving grace for short sales is that the buyers, if they are willing to hang around and are prepared to move at a moment’s notice, can sometimes pick up great bargains on homes that they have their heart set on. Now, short sales are not inherently great deals, but there are times when the bank lets them go for less than would be normally expected and it’s a great win for the buyers.
I will go over more in depth in a future blog post about how to find a short sale in Lancaster County, but in the meantime, you can start searching for short sales using this link: Lancaster County Short Sales
Justin M. Oberholtzer 717-856-3885 Keller Williams Realty