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What are the pros and cons of a short sale, and is it a safe way to sell my home when facing financial difficulties?
A short sale is a type of home sale where the homeowner sells their property for less than they owe on the mortgage, often to avoid foreclosure.
This is in contrast to foreclosure, where the lender repossesses the property after the borrower defaults on the mortgage.
As of 2024, it's estimated that over 20% of short sales in the United States are initiated by lenders, rather than homeowners.
The National Association of Realtors reports that, as of 2023, the average short sale takes around 120 days to complete, from the initial request to the final sale of the property.
According to the Consumer Financial Protection Bureau, a short sale does not technically require a homeowner to move out of their home until the sale is complete, but they may still face eviction if the lender repossesses the property.
Studies suggest that short sales can result in a higher likelihood of redefault for homeowners, as the reduced equity in the property can make it difficult for them to secure a new mortgage in the future.
The Federal Reserve reports that as of 2023, approximately 42% of US homeowners with mortgages have an mortgage-to-value ratio of 80% or higher, increasing their risk of experiencing financial difficulties that may lead to a short sale.
It's estimated that as of 2023, the average short sale commission fee is around 6-8% of the sale price, although this can vary depending on the location and real estate agent.
The Internal Revenue Service (IRS) considers the forgiven debt from a short sale as taxable income, but the Mortgage Forgiveness Debt Relief Act of 2007 provides limited tax relief for homeowners who have had mortgage debt forgiven due to a short sale.
As of 2023, the top 5 states with the highest percentage of short sales in the US are Arizona, Nevada, California, Florida, and Georgia.
The National Association of REALTORS reports that, as of 2023, the top 5 cities with the most short sales in the US are Phoenix, Las Vegas, Los Angeles, San Diego, and San Jose.
According to Zillow, the average credit score of a homeowner who completes a short sale is around 740, which is slightly higher than the average credit score of a homeowner who has experienced foreclosure.
As of 2023, the Federal Housing Finance Agency estimates that approximately 20% of short sales in the US are purchased by real estate investors, who often target undervalued properties for renovation and resale.
Research suggests that short sales can have a negative impact on nearby property values, potentially reducing them by around 10% within a 1-mile radius.
As of 2023, the top 3 reasons homeowners cite for considering a short sale are: (1) to avoid foreclosure, (2) to avoid significant financial losses, and (3) to minimize damage to their credit score.
Studies have shown that homeowners who complete a short sale are around 20% more likely to breach their mortgage contract than those who do not complete a short sale.
As of 2023, the average short sale price-to-list-price ratio is around 98%, indicating that homes are selling for close to their original list price.
The IRS acknowledges that the forgiven debt from a short sale is taxable income, but Congress has introduced legislation to exclude this debt from being considered taxable income.
Research suggests that a short sale can reduce the long-term potential of a property's appreciation by up to 30%, as investors are increasingly hesitant to purchase homes with a history of short sales.
As of 2023, the fastest-growing states for short sales are Arizona, Nevada, and California, reflecting the ongoing recovery of the housing market in these regions.
According to the National Association of Realtors, as of 2023, 70% of real estate professionals have had clients complete a short sale at some point in their careers.
As of 2023, the average recovery period for a homeowner who completes a short sale is around 2-3 years before they can qualify for a new mortgage.
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