What is a short sale in real estate? A short sale in real estate is when the sale of the home is less than the amount owed to the lender resulting in the lender being “shorted” the amount due.

But what does that really mean?  When the real estate market crashed there were millions of homes that suddenly lost all their equity and then some.  Many people were saving for their retirement through home equity.  With their equity gone coupled with the stock market crashing and millions of jobs lost, many people could not afford to make their mortgage payments.

The problem came when desperate home owners tried to sell their homes to save their credit.  Nobody wanted to pay $300,000 for a home that the market now says is worth $200,000.  The market was flooded with homes for sale.

When you have home owners competing against banks for the buyers, prices drop and the home owners lose.  Many buyers decided to wait for the market to bottom out and pick up a home at 50% off the value it had a year or more ago.

Short sales were the way home owners could sell their home and avoid foreclosure.  Banks were willing to take the hit in a short sale to save money from the foreclosure process where they would likely lose even more money.

Banks do not grant a short sale to anyone that asks.  There must be economic conditions and financial hardship that would warrant a short sale.  This means if you can afford to make your mortgage payments or the market can bare a price that would pay off your mortgage completely, then you will not be able to take the short sale route.

A short sale will not always relieve the seller of the remaining balance of the loan unless it is agreed upon with the accepted offer.  This is something that sellers need to know about.

Many real estate agents attempt short sales not knowing the details and make claims to the sellers that aren’t necessarily true.  If you are entertaining the thought of a short sale, make sure you work with a real estate agent or an attorney that has experience in short sales and can explain how the process will work.

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