In real estate, a Short Sale is when a homeowner who is trying to sell their house is “underwater” or “upside down” on their home’s mortgage. This means that the amount of money they still owe on their mortgage, to the bank, is higher than what the current market value is on their home. So an offer coming in from a buyer at market value will not cover the balance pay-off of their current mortgage.
If you find yourself in this situation in your home, it is my best advice to stay in the house until you can correct the imbalance in financing. Eventually, even if market value remains lower than what you purchased the home at, you can pay down your mortgage enough to be back on the right side of the equation. This might take years though, and there are some scenarios where you cannot wait that long to move or sell your home. Finding a real estate professional who can walk you through this extremely delicate process is essential.
Back in 2010, the housing recession at that time in the US was putting many people in this position. My husband and I found ourselves in this situation on a condo we’d purchased together, and then we found out that we needed to move. My husband got a new job out of state, and we unfortunately did not find a real estate agent who knew how to navigate Short Sales properly.
Instead, I ended up involving myself in the process, directly speaking with my Bank of America representative every single week (sometimes every day) on the phone to work through paperwork, documentation, applications and requirements to get our home sold legally and properly. It was like taking on a new full time job right before moving to take on an actual new full time job! I was incredibly stressed out through the entire situation, but in the end, we made it happen. There are a lot of boxes that need to be checked in order to even qualify for a Short Sale to be approved by your lender, and the ultimate goal is to be lucky enough to have the balance of your debt forgiven after everything is completed. Doing this on your own is not fun, and is not recommended. Don’t do what I did.
So, how might you prevent yourself from finding yourself “underwater” on a home in the first place? Let me give you an example of something that recently happened in our world that made me cringe:
Back in April and May, we were doing a house search in Colorado, thinking that we may want to move back to the Denver area in the next year or so. There was a beautiful home in an amazing location that we were very interested in, and it was waiting to go up for sale. We put in our interest request, and eventually heard back from their agent that the price was going to be listed at $1.7 Million.
Now, this house is newer construction with plenty of square footage in a highly desirable neighborhood. But the houses surrounding it don’t sell or list for anything higher than $800,000. This home was exorbitantly overpriced for the area, and the law of environmental deficiencies in real estate says that extremely high priced homes surrounded by homes of much lesser value will decrease in value over time. Have you ever heard the saying, “You want to be the cheapest house in a rich neighborhood?” This is the exact opposite of that, and you don’t want it.
We automatically passed on the house and chuckled a bit that nobody who knew their real estate numbers would ever let their client pay that price for that house. And then it sold. Someone bought it for $1.7 Million. And my first thought was that those poor people are going to be on the wrong side of their mortgage before they know it. If they ever decide to sell that home, the surrounding neighborhood’s home prices will never get them back their full purchase price on that house. They may end up having to Short Sell it, and that goes on your financial record for years. It’s not quite as bad as needing to Foreclose on your house, but it is and will be a red flag for any future financing you need.
My advice here is as it always is:
Know your numbers. They will always tell you a truthful story, and if a house you’re looking at is more than double the price of all the houses around it, then you’re risking any potential future sale you might want to make on that home.
Work with professionals who can help you. Asking for help is a strength. All of the most important and powerful people in the world delegate tasks to others who are experts in those matters. Don’t ever be afraid to ask for the help that you need!
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