What Is a Short Sale?
A short sale is when a homeowner sells their property for less than they owe on the mortgage, and the lender agrees to accept the shortfall to avoid foreclosing. You negotiate the price with the owner, but the lender must approve it — which is why short sales are slower and less certain than other purchases.
How a short sale works
The owner (often facing financial hardship) lists or markets the property below the loan balance. Any accepted offer is contingent on the lender approving the loss. That lender review — appraisals, financials, sometimes multiple lien-holders — can take weeks or months, so patience is essential.
Short sale vs foreclosure vs REO
In a short sale you buy from the owner (pre-foreclosure) with lender sign-off. A foreclosure auction sells the property at the courthouse, usually cash and as-is. An REO is already bank-owned after a failed auction. Short sales sit between: moderate discount, slower close, but you can typically inspect.
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Frequently asked questions
- Are short sales a good deal for investors?
- They can be — a motivated owner plus a lender willing to take a loss can mean a below-market price. The trade-off is timeline and uncertainty: the lender controls approval, so closes are slow and can fall through.