Real estate short sales definition

Don't be embarrassed if you don't know what a short sale is. This article will explain what a short sale is and whether you are a good candidate for one or not.

If you owe more than your house is worth, you may need to do a real estate short sale.real estate short sale

A short sale means that you sell the property. But you get a lower price than what you owe. Then you go to your lender, or both lenders if you have two loans. You get them to approve the sale of your house.

So there are two parts to a real estate short sale:

Sell the house much like you would any other house

Get the lender to approve the sale

Selling the real estate short sale

Selling a short sale property is like selling any other property. Except you are not trying to get a certain price. You are trying to sell quickly.

Many real estate agents may resist lowering the price enough to sell the house quickly. So it is important either to do the nine day house sale, or to find a realtor who will price the house low so it sells fast. See the nine day house sale how to sell your house in nine days when there are no buyers.

Getting a real estate short sale approved

The lender now has to approve the sale. The buyer is waiting to close. Now it's time to go to work and negotiate the short sale with the lender. Or with both lenders if you have two (occasionally even three.)

This is where it gets tricky. You want to have things like:

  • A hardship letter
  • Proof of your financial situation
  • The offer
  • A brokers' price opinion on the property showing that the offer isn't too outlandishly low
  • Pictures and information on the property including work that may need to be done to fix it up

The purpose of this is to convince the lender to approve the real estate short sale.

How a short sale settles at closing

When the property is sold, the lender then has to approve the short sale. At that point it is ready to close. The buyer brings funds into the escrow or lawyer's office. And the funds are paid out to your real estate agent, your lawyer or short sale expert who helped negotiate the short sale, and various closing costs. The remainder of the funds are paid to your first mortgage and if you have two mortgages, some goes to the second mortgage.

You do not see any of the funds. All the money goes to pay closing costs and to the lenders.

Hopefully, you have negotiated so you are released from further liability, and so that your credit is okay and you can move on with your life.

See walking away from your mortgage for more information.  And also see should you stop making your mortgage payments. And how to sell your house fast.

And please watch my video on how to avoid foreclosure by doing a short sale even if you have a second mortgage foreclosure situation. The answers are here. I will never share your name or email with anyone.

And watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. Thank you.

Should you rent while in foreclosure

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13 Comments on Real estate short sales definition

Jerry Larach @ 10:02 am:

I love your post….This definition of short sale it's very well defined.

Keep up the good work.


Matt @ 7:20 am:

I have heard short sales aren't good because if you have PMI, the insurance group can come after you for the difference. That is what my lender told me anyway. What are the laws on this?

Richard Geller @ 8:56 am:

Short sales are not good but they are the best you can do under the circumstances.

If you owe more than your house is worth, you can't refinance. So what are you supposed to do?

The rules on who can come after you are a little complex. But one simple rule is that if you have a second mortgage, they can come after you.

The first mortgage holder may or may not be able to come after you. I have a page here,, that has a list of states that can and can't come after you and it is a good place to start.



Jeani @ 9:57 pm:

Is BUYING a short sale the same process as buying a none short sale?

Richard Geller @ 12:58 pm:

Yes , it is the same process with a longer delay and more uncertainty. That is why you should pay a below market price. I would pay 85% of a good appraised value (conservative, very recent) for a short sale purchase situation, no more. You have to put up with idiocy on the part of the lender or lenders and the deal could fall through after you've waited two or three months.



Michelle @ 7:46 pm:

We have been trying to do a short sale yet haven't received one offer. Our house is valued @ $170,000, we owe $144,000. We have to get rid of it…we can't afford to keep it, and we still owe taxes from last year. It's been on the market since March. I've talked to the lender about our other options, or our next step to get out from under it…Deed in lieu. My Realtor says that the lender will give me a 1099 form and I will have to pay taxes on 144,000 at the end of the year. Is this true? If I can't make the monthly payments now why would I be able to pay $140,000 worth of taxes? Would it be better to allow them to foreclose since my credit is already seriously in need of work at this point. Then I could just deal w/ all my credit issues at once and start fresh. Thank you so much for your time. We are in the Houston area if that makes any difference.

M Cohen @ 3:17 pm:

Is it difficult for the selling agent to recieve their commission on A short sale?

No it isn't. Lenders will pay generally 4 or 5 percent commissions on a short sale. To be split the usual way.



jon @ 1:45 pm:

I completed a short sale closing last week (I am the seller). PMI stated they wanted to me to pay a difference. The lender told me that the difference agreement would be in the closing. The bank sent me papers. I signed them. The house closed and belongs to someone else now. They forgot to put in the PMI agreement into the closing. The lender now wants me to sign a contract to make up the difference for the PMI. Any thoughts?

kyle west @ 5:28 pm:

Jon, can you please let us know how it works out, I'm in the same boat. Please keep us posted, and I will you if I receive some resolution I will do the same.
Best regards

Michele @ 2:51 pm:

In order to be offered a short sale by your lender, do you already have to be in default on your loan?

Alicia Woods @ 4:34 pm:

I have a short sale contract that has been lender approved. Thelisting agent is selling to her boyfriend and at this point "they" are requesting an inspection. AND "they" have pointed out an issue with a sliding door which they were well aware of prior to making the offer. They are saying they will not close without an inspection. What is my position as a seller? I always thought "short sales" were as is … where is … without any fort of guarentees. They are paying 60K for a house which the bank appraosed for $78K and I originally paid $158K in Las Vegas and still owe $118K. HELP … please!

[…] no longer afford their homes. They don't want to sell, yet they need to sell. So how does a short sale process begin? What needs to happen to communicate the financial hardship to the bank? And how does […]

Shane @ 11:36 am:

I recently relocated with a Federal Agency and went through the home inspections and appraisals. The relo company gave me an offer that is 4k under what I owe on the home and it's impossible for me to continue on with the mortage payments and keep the home. As well I am two payments behind and don't want to risk forclosure and the negative credit connotations that go with it. The lender is recomending a short sale as I cannot get a personal loan to cover the difference so is this the right way to go or do I have any other options?