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What is a short sale?

Posted on October 20, 2017

Like every prospective home buyer in St. Louis, you dream of finding that perfect home that is listed for an absolute song. Believe it or not, such listings are actually not all that difficult to find. Yet if you see a listing that seems to be too good to be true, think for one moment before calling your agent and immediately making an offer. The listing that you are looking at could likely be a short sale. After all, reports that 5.1 percent of all single-family home and condo transactions in 2016 were short sales.

What is a short sale? It is where a seller is looking to unload a property for less than what he or she owes on it (in essence, the sale will still leave him or her “short” on the mortgage). You likely question why anyone would want to sell a home for less than what he or she owes. Typically, sellers are motivated to do a short sale because that are behind on their payments and risk foreclosure or they are underwater (owe more than the home is worth). The hope is that they can quickly sell the home and that the lender will take their lesser offer. There may not necessarily be anything wrong with the home; it is just that the seller wants to quickly unload it.

So why would you not want to jump at this opportunity? Keep in mind that while the seller had every incentive to accept your offer, his or her lender does not. It could reasonably reject the offer if it believes it could get more from a foreclosure and auction. Even if it does agree to entertain the offer, the lender may attempt to negotiate with you to cover more costs up front to try and minimize its losses.