What is a Shortsale (Real Estate)

Short sales have become the solution of choice for struggling homeowners across the U.S. But popular as it is, it’s also among the least understood in the loss mitigation industry. If you’re considering a short sale to steer clear of foreclosure, the first step is to get informed and make sure you know what you’re doing.

So what exactly is a short sale? In real estate, a short sale is the sale of a property for less than the amount owed on it. The lender agrees to accept the proceeds of the sale as full payment. In most cases, the borrower is freed from all obligations upon closing, although sometimes they still have to pay the remaining balance (known as the deficiency).

Pros and Cons

The advantages of a short sale are obvious for borrowers: they get to clear their debt without as much damage to their credit as a foreclosure. For the lender, short sales don’t always make sense. Lenders only agree to a short sale if it presents a smaller loss compared to a foreclosure, and if they are adequately convinced it is the best solution.

Of course, choosing a short sale also has its downsides. For one thing, you don’t get to keep your home—you still have to go through the trouble of finding a new place to live and rebuilding your credit. And since not all lenders will accept your short sale offer, it’s important to have a backup plan in case it doesn’t work out.

How it Works

The first step to a short sale, like any other form of loss mitigation, is calling up your lender. This is a way of telling them that you have the initiative to act on the problem, and that you are willing to do what it takes to get back on track. It may take a few calls to get to the right person, but it always takes a bit of patience—and it’s usually worth it.

Once you have the information you need, it’s time to start valuing your home. This means having it officially appraised so that you can put it on the market. If you’re working with an agent, he or she can help you prepare your home for appraisal so that you can get the most out of the short sale as possible.

Next, you need to market your home and find a good buyer. Short sales don’t often have the same exposure as regular sales, so a realtor can really come in handy in getting word around. Market your home in any way possible—on the Internet, in newspapers, even through word of mouth from family and friends.

When you’ve found a buyer and agreed on a price, you can start preparing to close the deal. Closing is where the short sale officially ends and ownership of the home is turned over. Before the day itself, double-check all your documents and make sure everything’s ready for signing.