What is a Short Sale in Real Estate?
What is a Short Sale in Real Estate?
Very simply, a short sale is when a lender agrees to discount a loan due to an economic hardship on the part of the homeowner. Typically, a short sale is used to prevent a home from being foreclosed. Usually, a bank will allow a short sale if they believe it will result in a smaller loss than the expense required to foreclose.
Short selling real estate is a technique real estate investors (and some realtors) do to help homeowners avoid the damaging effects of foreclosure. If a homeowner owes $200,000, a short sale is when they sell the home for say, $180,000, and the lender accepts $180,000 as payment in full. In some cases, the homeowner would still be responsible for the remaining $20,000. But, it's very common that banks just eat that loss and move on. This, of course, creates an opportunity for investors and the like to buy a property at a discount, help a homeowner avoid foreclosure, keep the bank from having to foreclose which is costly and negatively effects their ability to borrow more money from the Fed. If done correctly, it's a true win/win/win situation.
Find out more about how to short sale real estate.