The easy explanation is that a short sale happens when a seller owes more on the loan on a home than he can sell it for. The way that happens is when a person hasn't owned the home long enough for it to appreciate (maybe 3 to 5 years) and with closing costs, he is going backwards on his investment. The other scenerio is when money has been so readily available to borrow on a home and homeowners get themselves in trouble by taking out a HELOC (home equity line of credit) or a 2nd mortgage to free up cash to use however they wish. Instead of increasing equity in holding on to a home for several years, they lose their equity with increased debt.
If you are looking to purchase a home, make sure that you are planning on living there for several years so you can avoid selling for less than you owe. Or have enough funds in the bank so that you have the money to close thereby avoiding a short sale. With our current market, we agents are definitely seeing housing prices coming down from what they were a year or two ago. The best strategy is to plan on staying in the house you want to buy for several years before selling and ride out this current storm. Prices will begin going up at some point!
Those of you who have remained in your home for several years should seriously evaluate whether you can "afford" to take out a 2nd mortgage on that boat, kitchen remodel, special vacation or just to pad your bank account for those extra luxury items that you want. Better to keep your home equity in place and SAVE some of your paycheck for those extra things.
Of course, the article that was published in Sunday's Seattle Times on the front page of the real estate section stated that 20% of all home sales in March nationwide were short sales. While that is true, it is important to read further down when it says that ony 4% of home sales in March in King, Kitsap and Snohomish county are short sales. I guess we should be thankful we live in an area that is better than the norm!
If you want to read the entire article in the Times just go to: