5 Short Sale Myths

The five most common myths surrounding buying and selling short sales.

Myth 1. You Might as Well Make Multiple Offers

This is called the “shotgun approach.” Basically, you make a ton of offers on various properties, perhaps even “low ball” offers hoping that one will stick. Although this is legal and you might even get a “hit” – It’s generally considered a poor practice in the industry, because you’re giving sellers the illusion that they have a serious buyer when they really might not.

The consequences of buyers who “shotgun” their offers is that some sellers will have their homes foreclosed on and have their credit destroyed simply because they thought they had an offer on the table when they really didn’t – And turned down other offers, didn’t reduce their price or promote more aggressively.

Myth 2. Banks Prefer Foreclosure Over Short Sales

Not true at all. Foreclosures often costs bank 20% or more to complete than if the seller short sold their home.

Myth 3. Short Sales Are Houses on Wholesale

This isn’t true either. How much under market price you can get the house depends entirely on how much money the bank thinks they could get from a foreclosure. You’ll generally be able to get 15% to 35% less than market price. This is some small percentage above what the bank would get at foreclosure. You will generally not get higher than 35% off the price of the home.

Myth 4. You Can’t Negotiate a Short Sale

This is really two myths in one: That banks are extremely inflexible, and that there’s no time in a short sale to negotiate

Neither of these is true. A short sale must be a win / win / win in order for it to happen: The bank must win by losing less money than foreclosing, the seller must win by preserving their credit and the buyer must win by purchasing a house at a discount. The banks are willing to negotiate if that’s what it would take for them to have the deal they need.

Myth 5. Banks Aren’t Willing to Take a Big Hit

Over the last several years, real estate prices have dropped like a rock. This is a very possible scenario: A buyer purchases a property at $250,000. Three years later, he still owes $230,000 but the value of his home is now just $110,000 – A $140,000 difference!

Most people think that banks aren’t willing to short sale such a gigantic difference. However, that’s actually missing the point. The point is not how much is on the mortgage – It’s how much they would lose if they took it to foreclosure, versus how much they’d lose if they did a short sale. Whether the seller is $10,000 upside down or $100,000 upside down doesn’t make a difference: That’s money the bank has already lost, since the seller is going to default either way if they don’t get rid of the property.

Call one of our short sale experts at (480) 331-2831