What is a Short Sale in Real Estate: What You Need To Know

A short sale refers to a sale of a mortgaged property in financial distress to a buyer to repay the lender a value below what is outstanding debt held by the homeowner. In a short sale, the homeowner must prove to the lender their inability to service debt. Property values in the locality must have fallen to convince the lender to accept less than what is outstanding on the mortgage.

Here is what you need to know if you are wondering what is a short sale in real estate.

Why Homeowners Opt for a Short Sale: Avoid or Forestall Foreclosure
A mortgage holder who can no longer service debt will prefer a short sale to avoid foreclosure, which is more damaging to a mortgage holder’s credit record than a short sale.

In a foreclosure, the lender initiates repossessing the property to sell off and recover as much of the original loan as possible. Additionally, in case of a foreclosure, the homeowner loses eligibility for debt for several years.

What Is A Short Sale In Real Estate

The lender will prefer a short sale over a foreclosure to avoid legal fees. The lender takes a financial loss in a short sale, but probably not as significant a loss as it would have been with a foreclosure. The mortgage holder’s main objective is to convince the lender to “write off” the debt upon receipt of a price value below the amount owed on the mortgage.

How Does a Short Sale Take Place
The process of a short sale is rather long and can last for weeks or months. The homeowner starts by seeking approval from the lender to sell the house to a buyer. The homeowner then works with a real estate agent to list the property.

The homeowner can only execute a sales agreement with a potential buyer upon receipt of the lender’s approval of the sale contract. However, the lender is not obligated to respond to a homeowner’s request for acceptance of the sale agreement in any particular manner.

As the buyer in a short sale process, ensure you carry out a house inspection before signing the sale agreement. In another article, we will discuss aspects of consideration for what isa short sale in real estate from a buyer’s perspective.