Housing | Real Estate

Have you ever heard the phrase “real estate sale” and wondered what it meant? The media of late has put a good deal of focus on banks and other places of finance who are looking towards real estate short sales instead of foreclosures in a bad real estate market. Throughout the country, the prices on real estate have dropped and the time that is required to make a sell is on the rise. Detroit is one such example of this. The rise in short sale real estate can be directly linked to the declining market.

So, what is a real estate short sale? Well it’s when a bank agrees to allow a property to be sold for less than the amount owed on it. The following two conditions must be met in order for the bank to approve such a deal. Condition number one will likely be that the market values have to dictate that the property’s sale price will not cover the existing mortgage balance. An inability to make additional payments on the property is the second requirement.

You might have someone who bought a property five years ago for the price of 217,000 dollars using an adjustable rate mortgage. The owners decided two years later that they needed a second mortgage of 10,000 dollars, bringing their total to 227,000 dollars. Remember that in five years the amount that the mortgages would have been paid off is negligible. Let’s also believe that the property is in a part of the country where the market values have fallen to 215,000 dollars for similar properties, and that the adjustable mortgage interest rate has risen from seven to eleven percent. If we toss in the fact that one of the owners has just lost her job, we should realize that a real estate short sale is on the horizon.

In avoiding time delays and expenses, the bank will probably decide to go with a short sale. Banks do this because it allows them to accept a definite amount of money and because it allows them to get the property off their books. Those are the basics of a real estate short sale, though numerous complications can arise from having multiple owners and lenders not agreeing to a short sale terms.

A real estate short sale is not a very pleasant experience, but it certainly isn’t the worst experience they could have. In terms of items that would reach the credit report, there would be far worse items, such as foreclosure. These short sales can give the smart real estate investor a great buying opportunity.