New housing data indicates that short sales are become more and more common as an alternative to possible foreclosure. A short sale occurs when a property owner sells for less than the amount owed on their mortgages. A short sale may enable a property owner to preserve their credit rating and avoid a default on their mortgage.

As with other real estate transactions, a short sale should be carefully considered along with a range of other options for owners looking to sell their property. For owners who do not have the ability to pay the difference between the short sale price and the amount still owed on their mortgage, a short sale may not be a good option.

However, the transfer of property can be much faster than with a foreclosure, resolving in a matter of weeks just as a traditional home sale would. In contrast, foreclosures face procedural barriers to putting the home back on the market quickly, and may result in the home being vacant for years.

Over the past year, more homeowners have been choosing short sales than ever before. Last year, short sales made up only 16.3 percent of home sales. This year, they accounted for approximately 24 percent. One reason for the increase is that banks have been more willing to agree to the deals, since a home re-sold after a short sale earns about 6 percent more than a home sold after a foreclosure.

In our next post we’ll explore this topic in more depth.

Source: Bloomberg, “Short Sales Surpass Foreclosures as Banks Agree to Deals,” John Gittelsohn, April 17, 2012.

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