What is a short sale? Know the type of seller you are goign to write an offer on.
Types of Sellers
Okay. Our third type of seller is our short sale. Now, if you don't know what a short sale is, it's an emotional roller coaster, and the whole idea here is that the seller is upside down on their mortgage and the place is worth less than what they owe. So let's just use an easy example. Let's say the home is worth $300,000 and that they owe 400. You're going to make an offer around that 300 mark, maybe. And they're going to say to the bank, "Hey, don't worry about that hundred grand. Just let me sell the house." You can imagine that this is not super attractive for the bank to accept these terms, but that's exactly what a short sale is. Now, with a short sale, the reason it's called a short sale is because it's a short payoff, not because it's a short amount of time.
A lot of people think that, oh, it's a short sale. I got to sell quickly. I got to do this. And yeah, that's true in the sense that the seller does not want to get foreclosed on, but what's an average timeline? First, a quick short sale, three to four months. More average, probably somewhere between four to seven months, and a longer would be a year plus. Now they have gotten better at doing these over the years. I remember back in 2010, you had about a 5 percent chance of getting a short sell through. It was atrocious. So these days it is a lot easier, but the thing is, it's not a guarantee.
So if I'd said, if you have to wait six months, but I get you a really good deal, you might say, okay, no problem. I'll just keep renting or something. But if I say, Hey, wait, six months, you may or may not get it, interest rates may or may not go up or down, and more homes are going to come on and off the market, and in the next four to six months, I can't guarantee that they're going to accept the price or if we're going to get the house. That's way less exciting. And just to kind of prove this a little bit more, a couple things is the bank can say, "Yes, we'll take your offer, but we want the seller, we want them to bring money to the table. We want them to owe money over time." And the seller may not be willing to do that, which then just kills the deal.
Likewise, if they did something like a 80-20 loan, which was really popular back in the day to avoid mortgage insurance, that could be with different banks. Or maybe there's a lien from the condo or the homeowner's association. The point is multiple people have to say yes in order for this to go through. So it's not for the faint of heart. What I recommend is that you do everything else. Do a happy homeowner, do a foreclosure, do anything else first. Unless you're an investor, go find a home that you don't have that drama, but if nothing else is out there other than a short sale, sure. Do it. Go for it. Why not? You have nothing to lose. So.
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