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My family bought a short-sale property last year. What an incredibly rewarding experience - plenty of ups and downs. We waited 7 months for the deal to go through, and in the end we got a great deal. Since then, the market has fallen a bit further, but we are in our long-term dream home for a song!

If you can find the right property, and aren't fazed by bureaucracy gone mad (why did Bank of America decide to lose $100,000 by waiting 6 months?) or are buying as an investment home and are not emotionally attached it can be really worthwhile.

Before we start - it is important to acknowledge a feeling of guilt you may have at profiting from someone else's financial distres. What really helped me was to remember that while it is sad that people have arrived at a terrible financial point, by helping them achieve a short sale you are helping them get back on their feet more quickly. This is because it is better for your credit recovery to discharge through a short sale, rather than walk away, be foreclosed upon and then years later still be held as deficient and have to pay the debt anyhow.

What is a Short-Sale and Who Are the Parties in the Transaction?

A short sale happens when a property is sold, and the previous_loan-to-saleprice ratio of the property  is larger than 100%.  That is, the sellers' house loan is larger than the value of the house - the sellers are said to be "underwater".

Normally in a real estate transaction, there are the buyers, sellers, buyer's agent and seller's agent.  In a short sale, the contract-of-sale is an agreement between the buyers and sellers with their respective agents as usual, but the sale is subject to approval by the investment institution(s) that own the mortgage.  Many larger institutions hire a 3rd-party contrator who is called a "negotiator".  The negotiator sits between the (buyer/seller) and the institutions, and is generally responsible for  the gathering of information from buyer and seller, and assembly of offers for presentation to the investing institution.

The difficulty in achieving a short sale is to obtain contract approvals, via negotiators, from all interested investment institutions.  This is compounded by the fact that there is no effective negotiation - many institutions take a "this it it" stance after one round of offer/counter.

In what ways does a short-sale differ from a regular sale from a buyer's perspective?

The Short Sale Process

This is an experience article, so the following is a summary of the short sale process my family went through.

Where does the Stress Come From?

The stress that people talk about manifests in these ways:

How can I prepare for buying a short-sale property?

Reading the above is a good start!  Before you start, you have to find a property(!) and make sure you've discovered all there is to know about the agents and the sellers.  You will all be working together for some time, so this is worth it.

Now that you know the people involved, it's time to dig in to some specifics on the property, asking price and the sellers.


Short-sales offer fantastic potential, with many ways to fall through.  If a deal sounds too good to be true - it is.  Do the research on the asking price, get an appraisal to double-check you are not wasting money.
Make your offer appealing to the investors: a sole offer that is over asking and comparable with other recent sales seems to work well.