Understanding Short Sales

Whether you're in the market for a new home or considering selling your existing home, chances are you've heard of a short sale. Short sales are becoming increasingly common in parts of the country where home values have dropped substantially. Short sales can benefit those sellers facing the prospect of a foreclosure as well as buyers looking for a deal on their next place to live. However, short sales can also be tricky, so understanding how they work is essential.

What's a Short Sale Anyway?

In a short sale, a seller facing the threat of foreclosure enters into an agreement with their mortgage lender to accept a price for the property that's less than the amount they actually owe on it. The seller makes no profit on the sale but avoids many of the problems that would come from a foreclosure.

Possible Advantages

With a short sale, sellers avoid having to go through a lengthy foreclosure process and prevent the impact of a foreclosure on their credit score. In a short sale, the seller and the lender work together to determine the details of the agreement, but typically sellers who complete a short sale also avoid owing the balance of the loan.

The biggest advantage to buyers is clearly the prospect of moving into a new property at a great discount. Moreover, buyers may find that short sales have an additional benefit over foreclosures too, since unlike a foreclosure, there's not much of a risk that the buyer will need to take action to remove the seller from the property.

Of course, mortgage lenders can benefit as well. With a short sale, lenders don't have to worry about getting involved in a long foreclosure process. More than anything else, lenders want their money back, and they generally want to steer clear of taking responsibility for selling a home. So, a short sale can actually be good for them.

Potential Pitfalls

Sellers considering a short sale must understand a few important things. First, not all lenders will offer to relieve the seller of the responsibility of paying off the balance of the loan. So, sellers should get a solid commitment from lenders that states this is part of the deal. Also, though the seller is avoiding a foreclosure, even a short sale may affect their credit score to some extent. So, sellers should discuss this issue with their lender to figure out how the process will be reported to the credit agencies.

Most importantly, not all sellers even qualify for entering into a short sale. For example, few lenders will enter into a short sale agreement with sellers who have not yet missed multiple payments. So, if you're a seller thinking about a short sale, you'll want to talk to your lender about the options available.

Buyers need to be wary too, since getting a deal on a short sale is not as easy as it may sound. In fact, there are some extra steps that buyers need to take when entering into a short sale, which can require doing some additional homework and assembling the right paperwork. For a guided tour of this process, see the ten steps to buying a short sale.

Of course, if you're a buyer considering entering into a short sale, it would be wise to consult a real estate professional who can answer your questions and help you navigate the process. This way, you can be better prepared to pull together all the appropriate information you need to complete the transaction and move into your new home.

For More Information: What Is a Short Sale?

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Edward C Lamson Jr.

Will a short sale be a wise idea for a person on fixed income such as disabled veteran and social security but has less than perfect credit I have a friend who has to sell his house in a short sale and I am interested but I don't want to waste his time if it's something I can't do

November 10 2015 at 2:19 PM Report abuse rate up rate down Reply

For the record, short sales do not always mean the seller is facing foreclosure. There are many circumstances that may require a short sale, some valid, some not.

May 12 2011 at 2:47 PM Report abuse rate up rate down Reply


You need to wake up. I only warned people about what happens with short sales. It's the broker's that falsely advertize too low a price to get offers. Regarding my job, I've worked two for the last 30 years.


May 12 2011 at 1:49 PM Report abuse -1 rate up rate down Reply
Mike Rabbitt

who is this????

May 12 2011 at 11:38 AM Report abuse -1 rate up rate down Reply

Melissa you should read more - I dont know where you get greedy from and irresponsible. Do you know tht there is a recession in America - people are losing their jobs and homes due to the economy? It must be great to financial wealthy and have a secure job like you.
And you too Gurney77!!!!

May 12 2011 at 11:08 AM Report abuse +1 rate up rate down Reply

These people who are selling short are greedy and irresponsible in the first place. They are destroying good equity in the neighborhoods surrounding them.

May 12 2011 at 9:22 AM Report abuse -2 rate up rate down Reply

STAY AWAY FROM SHORT SALES. You left out the part that the bank can and probably won't agree to sell the house for the "contract" price. Brokers list the house too low to get offers, The seller doesn't care they just want out. You sign the contract with the seller NOT THE BANK. After waiting months the bank comes back and says we want 10's or hundreds of thousands more because that's want the house is worth. Now you have a choice walk away and start all over again. Or buy a house that probably has not been maintained or heated for months and months and pay for the repairs.


May 12 2011 at 8:42 AM Report abuse -1 rate up rate down Reply
1 reply to gurney77's comment
Tom 4Real Estate

Gurney, your a moron.

August 12 2011 at 9:43 PM Report abuse rate up rate down Reply