Perhaps I am just slow, being a broker/owner and all, but the short sale niche seems to be poorly understood by most of the stakeholders involved.  Especially the offer and acceptance part. So let's work through it together:

1. A homeowner calls the Realtor and says "I want to sell my house".  Nothing difficult so far.  The homeowner indicates (sometimes not) that the payments are behind, or maybe the homeowner is on the brink of missing the first payment.  While that information is important to know, it is not the first most important question, that being "What is the current market sales value of the property?".
2. There should be a bit of "Due Diligence" performed by the Realtor.  Public records of ownership and encumbrances, and tax and assessor records should be obtained and understood.  (I am amazed by how many "professionals" do not perform due diligence, but I digress.)
3. A market analysis should be completed.  I am not advocating the one or two step approach here, just saying that a thorough market analysis must be completed before the property is exposed to potential buyers at a saleable price.
   
4. Now it can get messy.  As an example, let us say that the true market value of the property is $200,000. But, the encumbrances total $225,000. Assuming there are costs to sell the property of $15,000, then the potential loss is $40,000.  If the owner has $40,000 in cash to contribute, then no problem.  But that is seldom the case, because in most cases the homeowner bought with little or no equity investment, or extracted the equity to buy a boat or something. So, what to do? That's easy.
   
5. Get the Bank to cover the $40,000 loss. OK, maybe that will work, if there is adequate evidence that the Bank will lose less on a "normal" sale than would be lost through a foreclosure action.  The homeowner can ask the Bank, but in most cases the Bank will not respond until there is hard evidence of intent on the part of a buyer. 
   
6. The hard evidence is an executed contract.  The contract to buy and sell (lots of different names nationwide) is between the BUYER and the SELLER, not the BANK.  If there comes a buyer that is willing to pay the market value ($200,000) the Seller must essentially beg the Bank to take the loss of $25,000, and pay the fees associated with the sale ($15,000).  The Bank must be convinced that losing $40,000 now is better than losing more than $40,000 later as the result of a foreclosure action.
7. Understand that there is no universally accepted methodology for the Bank to process this "short sale" situation.  As a matter of fact, that are thousands of methods practiced, and the rules of method change EVERY day, influenced by personal bias, corporate financial status, and government intervention.  In short, there are no rules.  This is impossible for the average consumer buyer to understand, and it is difficult for the average Realtor as well.
8. There are many (thousands in a medium size market like Denver) of homes that are worth less than what is owed on them.  This IS NOT an issue unless the seller must relocate, or has a job loss with a  resulting loss of ability to pay, and MUST sell thier home.
   
9. The system is woefully inadequate to process the volume of requests.  Imagine a 4 lane Los Angeles freeway reduced to one lane, with no alternative routes.  That is the short sale process system today, such as it is, clogged, with no one going very fast.
   
10. Most Banks (or mortgage investors) do not have the resources to continue taking loses on foreclosures and "short sales".  The government programs to support the Banking industry are being used to "cover" those losses, in essence the Federal Government is supporting the revaluation of the Nations real estate.
11. The Buyer must be patient.  For months.  A buyer should not attempt to purchase a "short sale" with the expectation of a quick close.  As a matter of fact, everyone involved must be patient. And, if the Bank approves the "short sale" (loss), then all involved must be prepared to move fast to accomplish the closing and transfer of ownership, because the Bank wants its money NOW!
    
12. Sellers should not be presenting offers to the Bank that have no chance of acceptance based on the reasonable market value of the property.  That just clogs the system, and disappoints everyone involved.

So, let's review: the Realtor and the Seller must understand the process; the Buyers and their Realtor must be patient; the offer price must be supportable, the Bank must be able to act (accept and pay the loss), and all parties must be able to go fast at the end. There is no universal system, the rules change every day, and the Bank is not cooperative.  Remember, no matter how you slice it , the Bank is losing money, and faces extinction or government takeover if loses are too great.  And the person that must approve the short sale will lose their job if the Bank loses too much money.

If you still do not understand, go to: http://www.kristalsellsdenver.com/denverdwellings/ and read Kris Kraft's take on the "Short Sale" phenomenon.

Larry D. McGee Broker The Berkshire Group, Realtors 3801 E. Florida Avenue Suite 400 Denver, Colorado, 80210 US	Work: 303-513-1436 Fax: 303-953-5390 larry@tbgdenver.com http://brokerisms.theberkshiregroup.com
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