guest commentary by Tom Steck Realtor at Century 21 Champions Madeira Beach, Florida
There are several new phrases that have become part of the real estate vocabulary in recent years as part of the fallout from the Great Recession, and "short sale" is one of them. ("Under water" and "upside down" are also phrases that now have real estate definitions.)
Actually, they all tie back to the same situation. Let's say a homeowner bought his home for $200,000 in 2006 (right at the height of the boom market), and took out a $160,000 mortgage to do so.
Now, the homeowner receives word that his company is transferring him to Seattle, so he must sell his house. He asks the Realtor® who helped him buy his house what it's now worth, expecting to be able to sell it and take some money with him out west.
To his horror, his Realtor® tells him homes like his have been selling around $140,000, and that he needs to do a "short sale" (there's that term again) to sell the property. In this case, the homeowner will have to bring at least $10,000 cash to closing just to sell the house, let alone get any profit from the sale. The $10,000 is the result of the difference between his mortgage payoff of perhaps $150,000 (after 9 years' payment) and the potential sale price of $140,000. This doesn't even address the seller's costs in Florida where the seller pays both the listing and selling Realtor®'s commissions, title insurance, etc., etc.
So, the term "short sale" means the seller is "short" the value of his home versus the balance of the mortgage he owes on the home when he tries to sell the property. ("Under water" and "upside down" both refer just to the fact that he owes more than the home is worth.)
If you owe more than your home is worth and you're not selling, it doesn't affect anything. BUT, if you do plan to sell, the term "short sale" applies to what you will be trying to do. In most instances, the homeowner doesn't have the difference in needed funds, and therefore there are now three participants in the deal: you as the seller, the buyer, AND your mortgage holder. The mortgage company must decide how much money it feels it must recoup on what it now considers a bad investment. It says it won't sign off on any offer less than X dollars, which just happens to be about $15,000 more than what a house like yours is selling for.
So, your listing Realtor® must convince the bank of the actual value of YOUR particular home, and why a buyer wouldn't pay any more than that amount for the property. This process can take some time, as the Realtor® should document the declining prices at which you agree that your home will be listed. Then, he or she must document the lack of offers at those prices as time goes on.
Although this may take several months, you WILL be able to sell your home with the help of your Realtor®!!