Al-Manazir

Ever wonder exactly what the currently popular phrase “real estate short sale” means? The media of late has put a good deal of focus on banks and other places of finance who are looking towards real estate short sales instead of foreclosures in a bad real estate market. Real estate prices are lower now than they have been in a long time and the amount of time it takes to sell a piece of real estate is rising. Calling the current real estate market a complete meltdown would not be unfair in some cases, such as in Detroit. The rise in short sale real estate can be directly linked to the declining market.

So, what is a real estate short sale? Well it’s when a bank agrees to allow a property to be sold for less than the amount owed on it. Banks typically want two qualifiers to be met before they agree to the sale. Foremost, you will need to have a market value that is in such bad shape that the sale price of the property cannot cover the balance on the mortgage. A complete inability to make the mortgage payments must also be present for the bank to agree to the sale.

As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. Two years after purchasing their property, the owners also took an additional mortgage out, to the price of 10,000 dollars. In five years, the percent that the mortgages have actually been paid off is likely to be an insignificant amount. In the same amount of time, the market values for similar properties are going for 215,000 dollars, while the adjustable rate has risen from 7 percent to 11 percent. We’ll also add the fact that one of the owners has just lost his job and it should be apparent that a real estate short sale situation is apparent.

Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short sale makes more sense in the long run. This is because the banks believe it is better to accept a definite amount of money now than to wait on an unknown amount of money that may materialize in the future. The process can occasionally become complicated, particularly if the owners and the lenders reach an stalemate when it comes to agreeing to terms, but overall, that is how a real estate short sale works.

Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. For the intelligent real estate investor, however, it can represent a great buying opportunity.