Short Sales in Real Estate

Short sales in real estate are strategies used by real estate investors to buy properties for cheap. Some people think of short sales in real estate terms as ways that real estate investors take advantage of homeowners in distress. However, there are two sides to real estate short sales. Successful foreclosure short sales will save homeowners from being foreclosed on as well as save their credits from being thrashed.

Illustration of Short Sales in Real Estate

Below is an illustration of an example of a short sale in real estate term at work. As shown below, the homeowner owes the bank $100,000 for the home. The home's value dropped to $50,000 and if the homeowner was to sell the home, he/she would only get $50,000 for it. That is not enough to pay off his/her mortgage so what should the homeowner do?

A solution that a homeowner with an upside down mortgage has is to do a mortgage short sale on the property with the bank. The homeowner cannot do it alone because short sales in real estate involve buyers who have to make offers to the lenders. In this case, say the homeowner is being assisted by a real estate investor. The investor prepared a real estate short sale package and submit it to the bank with an offer of $50,000. The investor negotiates with the bank until the bank accepts $50,000 instead of coming after the homeowner for the full $100,000. Whenever short sales in real estate are successful, homeowners are usually saved from the trauma of foreclosure or bad credit. However short sales in real estate are not always successful.