ion REAL ESTATE | by Michael Humphries | Compass Roads Realty, Inc
A Short Sale is defined as any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure. Lenders try to recoup as much money from the sale as possible because they must also pay settlement fees, including agent commissions, at closing.
Who Can Do a Short Sale?
There are two basic qualifiers for a short sale. While these two qualifiers do not cover every conceivable type of short sale, they are pretty standard for about 90% of the short sales. They are:
- Zero or Negative Equity
- Seller Hardship
With a few exceptions, if you've got those two qualifiers going for you, you are likely to get a short sale approval. There are a few banks who will not do a short sale under normal circumstances. Most banks aggressively pursue short sales and want to approve them. There are nearly twenty thousand short sales currently For Sale in South Florida.
Who Pays the Commission?
In a traditional sale, where the transaction results in net proceeds to the homeowner, agent commissions are the responsibility of the seller. In rare markets, a buyer may also pay agent commissions. In a short sale, the commission technically remains the responsibility of the seller, but the lender covers it with part of the sale proceeds. Because short sales are designed for financially-distressed homeowners, sellers seldom can afford to contribute money to close the deal. The lender effectively plays the role of seller in decision-making and bearing the expenses of selling.
Are There Any Cost to the Seller?
In addition to the commission, the lender typically also pays for all closing costs, including title insurance, taxes and document stamps. Other than being responsible for past due utility payments, the seller usually pays $0 at closing. The federal government has streamlined the short sale process for more than 100 lenders participating in its Home Affordable Foreclosure Alternatives Program, or HAFA. The lender can pay up to 6 percent of the sale price in agent commissions on a HAFA short sale transaction. In general, lenders base the maximum commission fee allowed in a short sale on what is "reasonable and customary" for the market
Do You Need to Use A Realtor?
Most lenders require that the sellers hire a real estate agent to represent them in a short sale. Although in some states a seller may initiate a short sale request directly with his lender and even market the home and receive an offer on his own, it is likely that at least one agent will be involved -- either representing the buyer, the seller or both. A short sale is one of the most complex sales in today's market and requires a tremendous amount of time and experience to successfully close the deal. There have been over 21,000 short sales completed by realtors over the past 6 months within Miami-Dade, Broward and Palm Beach counties.
Michael Humphries, designated broker for Compass Roads Realty, Inc. and real estate author covers local and national real estate news, industry trends and market analytics. Read more of his work here.
Search for thousands of homes in South Florida with direct access to the MLS.
