What Is a Short Sale In Real Estate?

by Lanard Perry
(Let's Talk Short Sales)

I keep reading about how much money people are making doing short sales in real estate. Can you tell me what it is and how people are making money doing it?

Okay, I have to admit that I set up this question because so many people are asking it. Here's the answer.

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A short sale is basically where a Lender agrees to accept a discounted payoff to release an existing mortgage, thus enabling a Seller to sell a property for less than what is owed on it.

But know this; just because a Seller is willing to sell a property with short sale terms does not mean the lender will accept the offer, even if the Seller agrees to it it. So, you must coordinate all short sales with the respective lenders and get them to agree to the sale.

But don't worry too much about it, because short sales are pretty common, especially in situations like in today’s market where so many Sellers have lost their jobs and mortgage foreclosures are at historical highs.

And even more to the point Lenders understand that if homeowners are losing their jobs they have a reduced capacity to pay their mortgages. So, it behooves Lenders to let Sellers sell to new Buyers with a greater demonstrated ability to pay.

Why Do Sellers agree to Short Sales? In a nutshell because they have a hard time making payments and are looking for viable ways to minimize their losses and move on to the next phase of their life.


A common reason for many short sales is that the properties were over encumbered when they were bought, meaning more money was lent on them than what the properties were really worth. This also occurred through refinances.

Why Do Lenders Agree to Short Sales? Primarily because some money from a new qualified buyer is better than no money from the current homeowner with a reduced capacity to pay.

Why Do Buyers and Investors Want Short Sales? Because they can potentially buy real estate at steep discounts and make a lot of money. Take Atlanta, GA for example, where it's pretty common to find 2,000 square foot homes with, 3-4 bedroom homes and 2 baths or more for $40,000. Why wouldn't Buyers and Investors be interested in those kinds of deals?

What Are Some of The Disadvantages of Short Sales? The list is lengthy and includes hidden liens and encumbrances, multiple mortgages that need to be paid off, bankruptcy proceedings, etc; and if you're not careful you can lose a lot of money and create a lot of debt where you had none before.

So, if you're going to play the game make sure you consult with a real estate professional who can in turn hook you up with the right people to help you get set up to be a successful short sale Buyer/Investor without losing the shirt off your back.

Here's To Your Real Estate Marketing Success!
Lanard