What is a Short Sale?  You've heard the term on news programs, seen it in ads for homes, and still wonder, "What is a short sale?"

A short sale occurs when a home seller owes more on their mortgage(s) than they will get for the sale of their home.  In other words, market value of the home is below what is due the mortgage holder.  The clues to determining whether or not a home is a short sale can be picked up in the phrases, "Subject to bank approval," or "Subject to third party approval," that you will see in the listing.  Your buyer's agent can also find this out by simply asking the listing agent.

When purchasing a short sale, a buyer needs to be aware of how the process works.  The seller of the home signs the purchase offer and presents it to their mortgage holder for what we call third party approval.  The mortgage holder must determine whether or not they will accept short payoff of the mortgage. 

The mortgage holder will order an appraisal or BPO (Broker Price Opinion) to dertermine the market value of the home, then compare that value to what is being offered in the purchase offer.  If it meets with mortgage holder approval, the short sale will be approved and the seller will be permitted to move forward with the sale of the home.  This process can take anywhere from 30 days to 6 months or more.  If there is more than one mortgage lien on a property, expect lengthier time frames.

A short sale, because of that unknown length of time for approval, is perfect for a buyer who does not have a specific deadline to be in their next home.  And if a buyer does have a specific time frame to be out their home, but is still interested in pursuing a short sale, a plan B needs to be in place for temporary housing in the even the short sale does not get approved as quickly as you need.

A short sale can be a great alternative to foreclosures as the homes are often owner occupied and still being maintained.  The systems in the home are in regular use and will be less likely to have suffered due to long periods of being vacant.

If you think you may be interested in pursuing a short sale, find an agent to represent you who understands which short sales best meet your criteria, and how the short sale process works.  An experienced agent will know which short sales are likely to be approved, and how to write the offer that will be approved by the mortgage holder.