What to Know About Selling Your Home as a Short Sale

Short sales in Alberta are typically undertaken by homeowners looking to prevent their home from going into foreclosure. However, not everyone understands how they work or what they ultimately mean for the sellers of the property. From credit scores to final sale price, find out more about how Alberta short sales operate for the lenders, buyers, and sellers.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

Striking a Deal with the Lender

When a home is getting ready to go into foreclosure, it's the lender's job to take back the property and sell it. The lender is in the business of finance—not in the business of real estate. The last thing they want to do is hire a real estate agent, arrange for home repairs, and negotiate with picky buyers. So instead of taking the job on themselves, they agree to take a lower price for the home if the seller does the work. The lender still has to approve the terms of the sale, but they don't actually have to make the arrangements. This is essentially the long and short of a short sale.

Working with Lenders

Short sales typically only occur when buyers owe more than the estimated value of the home. This can become quite complicated for lenders. If the loan has entered the secondary market for any reason (usually after being sold by the lender as bad debt), then the lender will have to appeal to a mortgage association to enter into negotiations. If the homeowner had LMI on their mortgage, then they also need to be alerted of the short sale.

That's why it's crucial for homeowners to communicate with their lender at every stage of the way. If a major financial hardship has occurred, the lender may be more willing to work with the owner. For example, the lender may be able to offer a deal where the seller and lender split the difference of the total loan price and the sale price of the home.

Pricing a Home

Lenders have to agree to the price of the home before the seller puts it on the market. Sometimes homeowners are in a hurry to get the process started, but a short sale isn't about rushing the sale. Short sales in Alberta are sold 'as-is'. This means that the buyer can't come back and sue the seller if the wiring of the home is faulty or if the plumbing is on its last legs. Sellers should still expect the buyers to request an inspection, no matter how attractive the home sale price may be. Buyers may also do their own research at City Hall to determine more about the construction date of the home or its original blueprints.

Finding Help

Real estate agents can help with many aspects of homebuying and selling, and they'll be extremely helpful in short sales because:

• Lenders take longer: Short sales can take quite some time to be approved. The lender not only needs to clear the sale but also the terms of the loan dismissal with the homeowners. Because this can take quite some time, sellers need real estate agents who know the ins and outs of the sale.
• Agents know loans: Lenders in Alberta may sometimes bury certain conditions of the sale in small print. A real estate agent can warn clients of any potential problems, so they can plan ahead.

Benefits of Short Sales over Foreclosures

When it comes to selling a home, homeowners often find themselves between a rock and a hard place. They can either face foreclosure, which can be particularly damaging to their credit and stressful, or opt for a short sale, which has advantages over foreclosure.

Sellers Make the Choice to Sell, Not the Bank

The primary benefit of a short sale is that it's a choice made by the seller, rather than one they're forced into. This gives them more control over the process, as opposed to a foreclosure, where the lender will take the lead in trying to recoup their losses.

Short Sales are Less Damaging to Credit

Getting into debt is never going to be good for the homeowner's credit, but a short sale is better than a foreclosure. Sellers may still be able to preserve a higher score if they can successfully complete a short sale. How much a credit score is affected will depend on how many payments were missed and how the lender reports the debt.

Regardless, those with foreclosures typically have to wait five or more years before they can buy another home. The foreclosure will stay on the credit report for seven years. Those who've done a short sale may not have to wait as long, especially if restrictions are included.

Short Sales Can Be Less Stressful

Short sales are often less stressful than foreclosures for sellers, thanks to how short sale involves negotiations with the lender, while a foreclosure is an entirely involuntary process. The seller can also choose to work with a real estate agent to help them navigate the process. There's also the potential for debt forgiveness in short sales, which would likely offset any stresses regarding the home-selling process.

What's A Short Sale Like?

Homeowners need to be patient during a short sale above all else. Sellers may need to go through several rounds of negotiations before the lender agrees to the terms. And because buyers usually have different loan terms in a short sale than a traditional home sale, sellers must also be prepared for the loan falling through on the buyer's end. This means starting the process all over again, which can be a hardship during an already trying time.

Short sales will take some mental effort on the part of the homeowner, but they're often the only way to protect a seller's credit score. A short sale shows that the homeowner is proactive enough to contact their lenders, work with a real estate agent, and negotiate terms in their favour. These are all positive qualities that future creditors and lenders will appreciate seeing in the future.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.