The Challenge with Short Sales

I get a lot of questions about short sales and why short sales frequently seem to be great buys. I will address this and other short sale issues in this article.

First, a definition: "A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured against the property upon receipt of less money than is actually owed." For example, if the unpaid balance of mortgage is $100,000 and a property sells for $90,000 the lender accepts $90,000 as full payment for the debt. Note that the seller may still be responsible for the difference between the sale price and the amount owed.

Short Sale Considerations

Why do short sales appear to be great buys? By law, the seller of a short sale will not receive any proceeds from the sale so they do not care what the listing price is. Many inexperienced agents list the properties well below market value in order to get it under contract hoping that somehow things will "work out". They don't "work out". For example, you could have a property under contract for $100,000, wait 8 months and have the bank approve the short sale at $200,000. We've handled over 40 short sales representing both buyers and sellers. The fastest one took 6 months and the longest took 3 years. Two were never approved. All sold at current market value; none sold at a discount. Short sales only appear to be a bargain but they are not bargains. Short sales will only be approved at full market value, the same price you would pay for a similar non-short sale property today.

Summary

In this article I presented the challenge with short sales. We have handled more than 30 short sales, representing buyers and sellers. Today, except under special circumstances, short sales offer no benefit to the buyer and do carry multiple problems. In general, we do not recommend short sales for buyers.