A short sale occurs when a homeowner stops paying his mortgage payment and applies directly to his lender for relief in selling his home because the fair market value is less than the mortgage balance. Homeowners going through a short sale use the services of Realtors to list their homes for sale. The Realtor lists the home for a fair market value and when an offer is received the Realtor advises the homeowner to sign and submit his short sale package with the lender for contract approval. The homeowner also can make application with his lender before the property is listed for sale. Once a property is listed with a Realtor, the Realtor informs the general public that the home is being sold subject to lenders approval.
The time it takes to get approval varies from lender to lender. It is also important that the homeowner signs a purchase agreement and completes the application with his lender for a short sale approval in order to expedite the sale process. Should the homeowner not make a short sale application before or right at the time the property is listed, the process can take a longer time for the buyer to receive an approval. In addition, and in most cases the homeowner has been strapped for cash for some time before he finally finds himself unable to make the mortgage payment. In financial distress the homeowner most likely has neglected the care of the home and therefore finds the value of the home to be less than the fair market value when it becomes listed for sale.
Short sales can than offer an opportunity to the buyer to capitalize on improving the value through sweat equity. However, the process of getting an approval can be very time consuming and dependent on the seller completing the short sale application with his lender. It is for this reason that short sales are not as desirable as conventional sales. Most home buyers are unwilling to wait for the approval process. There are times when the homeowner completes the short sale process and receives an approved sale price while marketing the home. The approved sale price should be accepted without further negotiation should the buyers not want to risk any additional time and money the lender is unwilling to continue to lose. It is at this point that most lenders are close to bringing the home to a public auction and can decide they just want the auction the home instead of waiting for the terms of an offer to go to a close. Delaying the lender can cost the short sale buyer to lose out if they don’t act quickly and provide the supporting documentation necessary to bring the home to a quick close.