Occasionally, I see a listing with short sale in the remarks. In the finance world, a short sale, or short selling or shorting means that is a way to profit from a decline in a price of security. Via Wikipedia.
Most investors "go long" on an investment, hoping that price will rise. To profit from the stock price going down, a short seller can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference.
However, short selling has a different meaning for a real estate transaction. A short sale in a real estate transaction means that the seller/s owes more money to the lender. Like this one. Via MRIS.
PRICED BELOW MARKET, SUBJECT TO THIRD PARTY APPROVAL. LOW CONDO FEE INCLUDES ALL UTILITIES EXCEPT ELECTRIC. A STARTER HOME, THIS IS A LOVELY PROPERTY WITH WOOD CEILING, WOOD FLOORS AND BALCONY. CALL LA AND MAKE AN OFFER.
This condo for sale is an example of a short sale. The seller's mortgage is way above the asking price. Selling short in real estate might happen because of seller/s have difficulties paying the mortgage. Rather than facing foreclosure, the seller decided to sell their house. Even before the property is put on the market, the bank or lender has to agree to the sale of the property. Therefore, an offer to purchase from a prospective buyer for the property has to be approved by the bank or lender.
Short sale listings that I've been seeing mostly for condos. This is not foreclosure or auction. In a foreclosure or an auction, home buyers can't have contingencies, i.e. home inspection, etc. You can't inspect a property before buying in a foreclosure situation. What you see from the outside is what you get -- in case you drive by the property before the D day.
Does it mean that the lender lose money? Not likely. Anytime you purchase a house and put less than 20% down, a lender might require you for a PMI insurance. That's the insurance that will protect the lender in case of default.
So, when you buy a property that happens to be on the market for short sale, you actually are in a much better position than buying it from the auction block. In a short sale situation, buyers allow to keep contingencies alive, i.e. home inspection, etc. Technically, a short sale is like a regular transaction except that in this transaction the party that signs off on the deal is the lender -- and not the homeowner. The homeowner gives up the right to make that decision.
