If you’re reading this, you’ve undoubtedly heard of a short sale, which allows a distressed homeowner to unload their property for less than the current mortgage balance.
Short sales have surged in popularity over the years thanks to the precipitous drop in home prices and the overwhelming presence of zero down mortgages taken out during the boom.
This led to a huge negative equity problem, which is in part being dealt with via short sales.
And while these transactions can be a great alternative to foreclosure for the homeowner, they can also greatly benefit the homebuyer as well.
But like anything that saves you money, there are plenty of hoops to jump through, and patience is a requisite.
Short Sales Are 27 Percent Cheaper
Per the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released this morning, the average short sale price was 27 percent lower than a non-distressed property.
This explains why they’ve been quite popular among first-time homebuyers, despite waning recently.
Last month, first-time homebuyers accounted for 39.7 percent of the short sale transactions completed.
While a sizable share, it’s down from the peak 54.1 percent share seen in November 2009, just before the original expiration of the homebuyer tax credit.
It also represents a third straight monthly decline, and the lowest share since the survey began.
Why Are Short Sales Becoming Less Popular?
Well, as mentioned earlier, short sales aren’t for the faint of heart. And they aren’t so, ahem, short – they require patience, as the bank needs to approve the deal. And homeowners must wait, often months, before getting word back.
In fact, the average time-on-market for a short sale is now 16.6 weeks, or about four months. Most of this time is simply waiting to get a decision.
Clearly the wait time can be daunting, especially if the mortgage lender comes back with a simple “no.”
Short sales also require a lot of cooperation from lenders, servicers, investors, appraisers, and so forth.
There’s also the worry of what happens during those months of waiting. Do mortgage rates rise and eclipse the savings associated with the short sale price?
Despite all the uncertainty, it’s clear you can save a pretty penny if you’ve got the time and are willing to wait.
They’re also a safer alternative than buying an outright foreclosure, which may be riddled with problems.
So if you’re a “would-be buyer,” you may want to consider a short sale. Just realign your expectations and remember not to get your hopes up.
Read more: How short sale fraud works.