Robopedia: Short Sale vs. Distressed Property

By
Real Estate Agent with Windermere Real Estate

It is easy to get all mixed up with the vocabulary swirling around the real estate market these days.  Two very confusing terms being thrown around right now are short sales and distressed properties.  While the two are similar and many times both are involved in the sale of a home, they are not the same thing.

Robopedia:

Short Sales and Distressed HomesShort Sales - When a seller is selling a home and the proceeds of that home will not be enough to cover the loan amount that the seller owns on the home. 

For example, If you refinanced your home for $500K last year and put your home up for sale for $480K, that sale is officially a short sale.  

Distressed Property - A home where the seller is at least 30 days behind on a payment of a loan that used the property as collateral.  This could be a home loan, home equity line of credit, construction loan, etc. 

  • So if someone has fallen behind on payments and is selling their home, but the proceeds from the sale will be enough to pay off all loans owing on the home, then it is a distressed homeowner situation but not a short sale.
  • If a seller is selling their home and is current on the payments but the proceeds from the sale will not be enough to cover the loans owing on the home, then it is a short sale but not distressed.
  • If a seller is at least 30 days behind on loan payments and the proceeds from the sale of the home will not cover the loan debt, then it is officially a short sale and a distressed homeowner

The situation for a potential buyer is different in each situation and the pitfalls can be significant.  Be sure to get some good advice before attempting to buy a property in any of the above situations.  They can offer some of the best deals in the market, but also come with some extra baggage.  The world of real estate is in a rapid state of change at the moment and this stuff isn't even clear to many agents. 

Give me a call if you need help.

Posted by

Rob Graham, Managing Broker

Windermere Real Estate

206-321-6349

robgraham@windermere.com

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