Short Sale


A short sale is when a buyer or investor makes an offer on your home that is less than the total amount owed. For example, if your mortgage balance is $340,000 but due to a declining market, the home value may have gone down, a buyer or investor would submit an offer and negotiate with the bank to buy the home for an amount less than the $340,000 loan balance.

When you have little to no equity and you are facing foreclosure, this is one of your options to still sell your home conventionally.

Here is an example of how a short sale may work:

Home Value $300,000

Home Loan: $320,000

In order to pay closing costs, realtor commissions and other expenses involved in selling your home, you would have to price the home around $340,000 – $350,000. If a $300,000 offer price came in from a conventional buyer, you would have to come to closing with $40,000 – $50,000 of your own money to sell your home.

For homeowners who can’t sell their home because they have to either price their home to high to sell, or they have to come to closing with a substantial amount of money, like the option of a short sale which would look more like this:

Home Value: $300,000

Home Loan: $320,000

An investor or buyer would come in and make an offer on your home for $280,000 – $300,000 and negotiate with the bank to accept the lower pay off.

The advantages of a short sale are…

  • The homeowner gets to sell their home, when they otherwise might not have been able too.
  • The homeowner gets to avoid foreclosure (which is the ATOMIC bomb of credit catastrophes).
  • The homeowner doesn’t have to come to the table with an extraordinary amount of money just to sell their home.
  • The homeowner can stay in their home and save up money to move while negotiations with the bank are on-going.

The disadvantages of a short sale are…

  • It still has a negative impact on the homeowners credit, but is still a much better option than bankruptcy or foreclosure.
  • There is about a 50% chance of the bank still foreclosing on the homeowner, despite short sale efforts, usually due to bank mishaps.
  • You may receive a deficiency judgement or a 1099 for the bank’s loss.

Short sales can take 2 – 12 months, sometimes more and they are very complex and time-consuming transactions. Typically, investors or realtors will have a processing team to work on the negotiations with the bank due to the immense amount of work involved in the process.