What is a Short Sale?

In today's market, the value of real estate is substantially less than it was a few years ago when it reached an all time high.

If you are looking for a home, you are probably seeing disclosures that state,"this is a short sale" or "offer subject to third party or lender approval". What does this exactly mean?

Here's an Example:

Jane Doe bought a home two years ago for $350,000 and obtained a mortgage for all 100% (she put no money down). Jane lost her (great paying) job of 15 years and is not making nearly the money she became accustomed to having. She is struggling to make her mortgage payment or possible has already stopped making the payments and is facing foreclosure.

She consults with an experienced real estate agent (Seller's Agent) to list her home for sale at today's current market value, $250,000, yes a $100,000 loss. Due to a "substantial change of circumstances" (loss of job) and once Jane gets an offer on her home, she will approach her mortgage company with a potential buyer's Offer and ask that a short sale be approved (the sale is short $100,000 and most times, it will be the bank that will be out the money with the Seller being able to walk away with the debt forgiven).

Now lets imagine that you are the one that put the offer in and your agent (Buyer's Agent) informs you that this is a short sale and a decision on whether your offer will be accepted or denied will take 2 weeks. Why so long?

Usually, once Jane contacts her mortgage company to request approval of your offer and therefore a short sale, this is the 1st time Jane's mortgage company will start the process (most mortgage companies will not even discuss this option until your have a potential buyer - remember talk is cheap but money talks) . It is at this point that Jane's bank will want:

• Proof that she cannot afford this loan (banks statements, tax returns, financial statement, etc.);
• Proof that Jane has had a "material change of circumstances", loss of job, divorce, etc.
• Proof of the current market value - Jane's mortgage company will usually hire another real estate agent from the local area that is not involved in this sale to go out to the property and report back to them with;

Once all this information is back to Jane's mortgage company, they will then be in position to address your offer.