A short sale occurs when someone sells a piece of real estate, such as a home, for less than what is owed on the mortgage. This has to be approved by the lender, as it normally wouldn’t be allowed.
If a short sale is possible, there are potential benefits on all sides of the equation. Let’s take a quick look at some of these notable benefits.
For sellers
For the seller, the main benefit is that they likely can’t afford to make the mortgage payments and may be at risk of foreclosure. The short sale allows them to avoid foreclosure and the negative impact that could have on their credit score. They may use this as a last effort when they know the home is no longer affordable.
For buyers
For the buyer, the main benefit is that they’re paying less than the house would cost on the open market. For example, if a home would traditionally have a value of $300,000 but they can get it in a short sale for $175,000, it’s an excellent investment. Not only does this make the home more affordable to the buyer, but they will have instant equity if they decide to sell the home themselves.
For lenders
For the lender, the primary benefit is that the homeowner who was previously on the mortgage was not going to make the payments. The lender may be able to write off some of the loss, reducing the financial impact, and they avoid the lengthy and costly foreclosure process.
Short sales may have many benefits, but they can also be complex. It’s important for those involved to know exactly what legal steps to take.