Q: I’m considering buying a home as part of a short sale. What advice can you offer me about this type of deal? — Sean F., Las Vegas
A: As you may know, so-called short sales are becoming increasingly common locally and nationally. Here in Southern Nevada, where home sales are soaring while prices are declining, they can be beneficial by helping homeowners and their lenders avoid foreclosure and by helping buyers buy homes at attractive prices. But these transactions can also be complicated and time-consuming.
Let’s start with a quick definition. A short sale occurs when the proceeds from a real estate sale fall short of what is owed on the property. In short sales, banks or mortgage lenders agree to sell a property for less than what is owed on the loan, generally recognizing that the homeowner is facing foreclosure or financial hardship. For the lender, selling the home as part of a short sale can be more beneficial (mostly by lessening its losses) than foreclosing on the home.
What some people don’t realize is that most short sales leave a deficiency balance, leaving the homeowner or borrower liable for the balance of the loan.
A short sale is typically a faster and less costly process than a foreclosure. But, buyer beware. It is still a bit of a process.
What bargain hunters don’t understand is that buying a home as part of a short sale can take some work. To complete the deal, they’ll have to spend some extra time waiting for the seller or lender to respond to offers and expect plenty of competition from other would-be buyers.
The past year has been a learning experience for buyers, sellers, lenders and Realtors who were unfamiliar with short sales. No two transactions are alike. No two lenders have the same criteria. And there is really no one “right” way to negotiate, document and close a short sale.
As Realtors, our ethics prevent us from practicing law. We must encourage our clients to obtain legal advice when the transaction requires it. A short sale can be such a transaction.
For example, Realtors must determine the legal ramifications of clients signing a purchase agreement without a contingency clause and without lender approval. Will the client be subject to a deficiency judgment or taxable income if the short sale is approved?
Here are a few other things to consider:
* Short sales involve risk for both buyers and sellers. Both sides should expect to review and approve additional written disclosures.
* Always get contingency clauses, counteroffers and responses to these offers in writing. This is both a legal and an ethical requirement.
* Check with your Realtor before drafting an offer or counteroffer. The purchase agreement or counteroffer in a short sale could include an acknowledgment that the lender’s approval is required and that the agreement is contingent upon such approval. Such a clause should spell out such things as the seller’s right to cancel and the return of earnest money to the buyer.
A successful short sale can be good for everyone involved. But be prepared to invest more time and effort into communicating with your Realtor, the seller, lender and others. Be patient. Try to stay flexible.
For more information, visit lasvegasrealtor.com or contact an experienced local Realtor.
Sue Naumann is the president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for nearly 30 years. GLVAR has more than 14,000 members. To ask her a question, e-mail her at firstname.lastname@example.org. For more information, visit lasvegasrealtor.com.