Alternative to Short Sale to Sell an Underwater Home in Sacramento

Be aware that not every underwater home is a short sale.

When a seller deposits cash to close an underwater home, that’s what makes a short sale not a short sale. I realize this can baffle some real estate agents in Sacramento because an anonymous agent attempted to file a complaint about my listing to Metrolist, claiming it was disguised as an equity sale. This confused MetroList as well because they could clearly see that my listing was an active listing and not a short sale. Everybody understood except the anonymous agent who apparently could not fathom how a seller could bring in money to close a transaction.

When is a short sale not a short sale? I guess in that agent’s mind if the home was underwater it had to be a short sale; but from where I sit, sellers bring in cash to close more often than you would think. Not every seller of an underwater home wants to do a short sale. Some wish to avoid a short sale and the accompanying derogatory credit by bridging the gap in cash.

This is how it works. Say we have a home that is worth $300,000 but the seller owes $330,000. If the home sells for $300,000, the seller is $30,000 short, plus the seller is short another $21,000 to $22,000 for closing costs and commissions. In this example, a seller can deposit about $52,000 into escrow, which pays all of the costs of sale, including the mortgage payoff, and it is not a short sale.

It is an alternative to a short sale. It is called a regular sale. The seller is adding cash in-lieu-of requesting a short sale. It will not affect the seller’s credit rating, and the seller can buy a new home the same day. Some sellers choose to sell a home in this manner. So, agents should not automatically assume that when a mortgage balance in the tax rolls seems larger than the sales price that the home is a short sale — and don’t rush to file reports with MetroList because it makes the reporting agent look like an idiot.

Trust that many of us in Sacramento real estate really do know what we are doing when we list a home and sell it. Thank goodness this home closed escrow this week. Both of the sellers appear relieved to have unloaded the property without resorting to a short sale. This alternative to a short sale does not fit everybody but for some sellers, it’s the perfect choice.