In the past, trying to sell a property while still owing a hefty portion of the mortgage was unnecessarily difficult. The reason why is that no lender would accept less than what rightfully belongs to them. After a while, however, having realized that accepting less was better than not getting anything, lenders slowly started approving these types of transactions.
Now, the process has become relatively commonplace and is known as a real estate “short sale.”
What Is a Short Sale?
A short sale occurs when something is sold for less than what the owner owes on it or what it is worth. For instance, if someone’s property is encumbered by a $100,000 remaining portion of the mortgage and they sell it for $90,000, they have engaged in a short sale. While it may sound quite unfair for one side and extremely advantageous for the other, it is a compromise between the parties. Why? Because a short sale can only take place when the agency that is entitled to the debt agrees to it.
If someone tries to pay off $100,000 with only $90,000 without any previous negotiation, per se, there is a very good chance that they will face a lawsuit. Thus, one of the two requirements that must be satisfied for this type of transaction to take place is a mutual agreement. The second condition is that the selling price is at or below the loan balance. If it is above it, then the the seller has the ability to sell and pay off their balance in full.
Why Do You Need an Agent?
Although it may seem somewhat straight forward, David Stanger, who works for Westmarq Realty, LLC, explains that a short sale is extremely difficult. Without even focusing on the details surrounding the paperwork requirements, there is a plethora of troubles that one must go through during the negotiation stage. After all, most states do not have laws that force lenders to accept an amount that is lower than the remaining balance of the loan. That means that the financial institution that issued the mortgage could easily decline the request and invalidate the endeavor. This is where short sale agents come in.
As the most fitting specialists that you could engage, short sale agents are experts when it comes to this real estate niche. While they may operate in some other spheres, it is not uncommon for them to build careers around short selling properties for others. To act as your representative, however, they must dedicate enough time to go through the mandatory paperwork. This includes things like the letter of authorization which lets the agent communicate with the bank on your behalf, a letter detailing the hardship that you are going through, prior tax returns, and similar.
Since there are countless documents you need, the likelihood that you will forget something important is quite high. Having an agent, however, will minimize the risk as he or she knows the ins and outs of the venture. So, the first thing that you should assess is the level of the agent’s knowledge when it comes to the paperwork that has to provided at the beginning of the venture.
Who You Should Stay Away From
Something that you should stay away from are nice licensed companies who capture your attention via flamboyant website designs or guarantees. Instead, as per David Stanger, who is an experienced real estate agent, you need to seek credentials and a professional track record. In translation, try to find out more about an agent by looking up their educational history, licenses, and experience.
If you are unable to find much in any of those categories, it is likely that the agent just started practicing. The best course of action here would be to find someone else. Even though there is nothing wrong when it comes to working with a rookie agent, you should usually let someone who has done this before handle your situation, especially when it is on the more complicated side.
More Things to Look for When Choosing an Agent
Once you get into the details of the agent’s portfolio, try to find out exactly how many short sales they closed so far. Then, ask for proof of some of them to ensure that their statements are valid. Unfortunately, there is no magic number here. For instance, if someone tells you that they have closed 50 short sales, you will probably be quite impressed. In case that those 50 transactions took place over 10 years, however, their achievement loses a lot of its validity. In reality, someone who has closed only 20 transactions in a year would be a better fit as they are much more active.
You should also look for agents who recognize that they cannot give you legal or tax advice. David Stanger reminds that short sale agents operate using professional licenses that disallow them from providing the aforementioned type of feedback. What they can do, however, is showcase some concerning factors about your transaction. As long as it does not cross into the sphere of giving tangible advice, doing so is completely fine. When you run into an agent that is planning on making a legal and taxation strategy for you, however, the best thing that you could do is consult with a tax or legal specialist.
Maintain Realistic Expectations
Do not forget to maintain realistic expectations. Even if you find the most talented and experienced short sale agent, they will still only be able to do so much. You should not expect the bank to instantly grant you approval any more than you should expect the agent to complete everything within a few days. On the contrary, simply let the expert handle the matter and avoid interfering or pressuring them.
