What Homebuyers Can Expect Buying a Short-Sale Home

This guide covers buying a short sale home and what to expect from homebuyers. Many first-time homebuyers believe that just because a home is listed as a short sale, they are getting a bargain. There are many short-sale homes that can be bought at bargain prices. However, that is not always the case. A short sale is a form of pre-foreclosure where homebuyers can still deal with the seller of the home.

Buying a short-sale home means purchasing the home for less than the amount of the mortgage of the home seller, so lender approval is required. For example, if a home seller has an outstanding balance of $300,000 on a mortgage and a buyer is buying the house for $250,000, that is a prime example of buying a home via short sale. The seller of the house has been given permission by the current lender and will need the lender’s approval with purchase offer for the short sale purchase offer to be valid

Benefits Of Buying a Short-Sale Home

Millions of home values have plummeted after the 2008 real estate and credit market crash. Homes that were once selling like hot cakes for $500,000 can be only worth $250,000. If someone purchased a home in 2008 for $500,000 and has taken a $400,000 mortgage loan on it, the seller might be listing the house for $350,000 via short sale. A home buyer might think that the $350,000 price tag is a bargain and might be putting in an offer for the listing price of $350,000. Even though the $350,000 listing price is way below the original purchase price of $500,000, the house can still be overvalued, and the market value of the house can be worth only $250,000.

Buying a Short-Sale Home Is Always Not Bargain

Buying short-sale homes is a good strategy, but the homebuyer needs to do their own due diligence. However, buyers buying a short-sale home need to realize that short sales are not always deals. Many times there are better deals with non-short sale listings. Please do not be misled with the term short-sale.  Remember that home prices have tanked drastically since 2008, and many home values have since increased in value. After the 2008 real estate meltdown, many homes have dropped by 50% or more.  Consult with a realtor and seek out a realtor’s opinions when buying a short-sale home. Do not just limit yourself to shopping for for short-sale homes. Current practices in the real estate market as of March 20, 2025, show what a homebuyer can expect while purchasing a short-sale home.

Homeowner Short-Sale Defined

This is a situation where a homeowner sells a property, with the lender’s permission, for a sale price lower than the outstanding amount owed on the mortgage. This is common for homeowners in financial distress who cannot afford the payments. They sell their property because its value in the market is less than the loan’s value. The lender then accepts the sale proceeds, forgiving some debt as a mortgage or collecting the remaining amount through a deficiency judgment lawsuit.

Buyer Expectations Buying a Short-Sale Home

Great Deals are Possible—But Not Always

Expectation: It is possible to purchase the home at bargain prices, as the lender intends to recover the money without going to the additional step of foreclosure.

Reality:

• Contracts containing offers significantly lower than the market price will not be approved by lenders.
• They use CMA or BPO and will only approve budgets that conform to the local competition.
• Therefore, a steep discount should not be given unless much repair work is required on the property.

A short-Sale Is Longer and More Complicated

Timeline:

• Short sales take much longer than traditional sales, which take 30-45 days.
• Short sales could take 60 days or up to 6 months and take longer if multiple lenders are involved.

Why:

• The seller negotiates with you, but the lender ultimately calls the shots.
• It’s up to the lender.
• In this case, they usually take weeks to months to respond.
• They experience delays due to incomplete seller paperwork, lender backlogs, and additional lien holders contributing.

Buying a Short-Sale Home is Sold “As Is

Expectation:

• A buyer looking for short sales should expect to see homes that may need selling concessions but will not receive sellers willing to cut deals on post-closing repairs.

Reality:

• Properties marked short sale are sold “as is.” Sellers in distress often do not have the cash to fix up, and lenders are unwilling to help create a two-way street of no funding.
• It’s prudent to order a complete inspection on these houses, as damages could include broken gutters, roof damage, mold, plumbing issues, etc. Most importantly, after closing, these expenses will be your responsibility.

Having A Pre-Approval is Important

Why:

• They have full confidence you will buy the house as soon as they approve the sale.
• A pre-approval mortgage or cash for the expenses benefits you as an offer.
• It reduces the time needed to start the project when the property is approved.

Risk of Seller Acceptance but Lender Non-Acceptance

Possibility:

• There is still a chance that your offer will be accepted.
• But the seller’s lender will not accept it, counteroffer at a higher price, or allow the deal to term from foreclosure if it’s more advantageous.

Fallback:

• Be willing to disengage and wait for the lender to make decisions.
• Buyers are flexible and patient, which is important in this scenario as some buyers move on to other properties when transaction stalls occur.

The Existence of Multiple Liens Affects Everything

Expectation:

• Only one lender is available to purchase from.

Reality:

• The existence of second mortgages, home equity loans, and tax liens means that other liens will require all sellers involved to consent to the sale.
• That might increase the time it takes to get an answer, and a yes will become more likely, but not for sure.

Steps in the Closing Process Buying a Short-Sale Home

Actions Needed:

• In the same way that closing is done in an agreement, other steps include payment of pre-agreed pricing tags for goods and services rendered with interest (2-5%).
• The loan and bankruptcy terms integrated with purchasing insurance policies must also be covered.
• But that is when it only becomes fully and legally accepted by some lenders, and more aggressive ones impose absolute timeframes, like 14 days.

Expenditures:

• Anticipate every last dollar Moore offers, but do not deduct any seller-lant-capped subsidies.

For Buyers

• Other terms and conditions are deemed favorable.
• The dwelling will need some improvement. But likelier, most now want dwellings at or sometimes below the expected market price.

Less Competition Buying a Short-Sale Home

• As this is a short sale, some buyers are deterred due to the intricate process involved, which may give you an advantage during negotiations.

Cons for Buyers Buying a Short-Sale Home

Uncertainty:

• Until the lender approves the contract, the deal is at high risk of not being completed.

Condition Risks:

• These repair costs increase savings, earning the title ‘hidden.’

Time Investment:

• If you’re working under time constraints, the unpredictability factor can be a major turn-off.

Tips for Success Buying a Short-Sale Home

Work with a Pro Buying a Short-Sale Home

• Use a real estate agent specializing in short sales, and hire a Certified Distressed Property Expert (CDPE).
• They handle all interactions and documentation with the lenders.

Research the Property Buying a Short-Sale Home

• Investigate public documents that pertain to liens.
• They can provide valuable insights about the current status of foreclosures.
• Determining what other properties have sold is also useful for setting an appropriate offer.

Don’t Skip on Inspecting When Buying a Short-Sale Home

• The key word is ‘as is’ but knowing what you are getting into is crucial.

Avoid Hurrying Buying a Short-sale Home

• Consider extending your timeline to avoid rushing into a lease or move-out date before the approval is guaranteed.
• Short-sale homes can offer savings, but the savings come at the expense of time and predictability.
• They are not easy to obtain.
• It’s more like a marathon than a sprint. However, the effort could secure you a stellar opportunity.
• Do you want clearer details on how to tackle this in your vicinity? Just ask!

This guide on buying a short-sale home was published on March 20, 2025