Ring—Ring! There’s another call…Since, interest rates dropped to an all time a few weeks ago, buyers are again asking questions and getting in a buying frame of mind. As a Minnesota REALTOR®, many of the calls I have received lately are from excited first time buyers and/or the parents of young people as they assist their children looking for their first home. A lot has changed since mom and dad bought a home so there can be many questions.
This time the call is from an excited first time buyer who has been scouring the internet for the perfect home at the ideal price. He calls and wants to set up some showings for the homes he has found. With a quick email, he forwards the dozen MLS listings and I bring up an array of his dream homes. With five of the six properties there is an agent note that indicates the home is in short sale. When I pass on the information, I hear a puzzled silence and pause.
Time for Real Estate 101—What exactly is a Short Sale and why should I care?
After months, going on years now, of the media coverage of the mortgage crisis, many people still do not understand what a short sale is…And more importantly, how it affects the home buying process. In a nutshell, a short sale is when the seller owes more on the home than it can be sold for in today’s market. To sell the home, the seller must ask the bank to approve the sale of the home for the lower price. It is also know as a pre-foreclosure home and can be a way for a homeowner to avoid being foreclosed upon if they can no longer pay their mortgage.
Why should a buyer care if a home is in short sale? A buyer will submit and offer with earnest money just as in any other real estate transaction. The sales price and terms are negotiated and agreed upon by the seller who then signs the purchase agreement, contingent upon the bank agreeing to the lower sales price. Some larger banks have hundreds, if not thousands, of these files waiting for approval. It is the norm to wait 8-12 weeks for an answer from the bank. Adding to the problem, many sellers will have more than mortgage on their home and therefore more than one bank can be involved in the approval process. An offer can give the first bank most of its money back so it will be willing to approve but the second bank, who is in a subordinate position, will get nothing and not approve the deal. It can be frustrating for a buyer to wait for an answer when there is no guarantee of when you will hear back from the bank.
How does a short sale compare to a foreclosure? In a foreclosure, the bank has taken back the home from the owner. The seller is now the bank and a buyer is dealing directly with the bank when an offer is written. A bank representative did not reside at the home so cannot disclose or tell you information about the condition of the home. While negotiations are easier and much faster, buyers must accept the risk and purchase the home in as-is condition. It is extremely important to have a home thoroughly inspected when buying a bank owned property.
If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me a call or visit my website for a FREE Relocation Packet or Homebuyers Success Packet. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.
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