What is a short sale? Understanding what a short sale is can be important if you are a real estate investor.  A short sale is when a lender is willing to accept a payoff of less than is owed thereby shorting the lender.

There are specific conditions that must be met before the lender would consider a short sale.   First of all, the borrower must have some economic hardship that prevents them from being able to make the payments.

The current market value of the home must be less than the amount owed otherwise the borrower would have to sell the home and pay off the mortgage.

If the bank is willing to grant a short sale they have their own system for determining how much they will be willing to lose on the home.  Many investors start by offering a very low offer hoping the bank will come back with a low counter offer.  The truth is many banks will reject or ignore the offers that are ridiculously low.

Banks will generally sell the home for the market value first.  If the home sits for a few months without any near full price offers, they will lower it until it sells.  There is a limit to the amount they will accept.

If you do submit an offer on a short sale, be sure to include reasons for the price you chose.  Start off with the market price and deduct quotes for repairs. Also include comparable home sales to back up the starting price.

If you can back up your offer the bank will be more likely to accept it even if it is lower than the current list price.

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