It’s a “Short Sale…a What?

It’s a “Short Sale” … a what?
by Steve Meyers
Keller Williams Greater Seattle

There are so many of my clients looking at properties that are “Short Sales”, that I thought I should provide some sound advice…run…run… and then run faster, away from them. The horror stories you have all heard and read about are true. The National Association of Realtors estimates that 80% to 90% of Purchase and Sales Agreements on “Short Sale” properties will never close.

So, what is a “Short Sale” ? Good question. A “Short Sale” is the sale of a property for less money than what the borrower owes to the Lender(s) or Lien Holders. The Lender(s) may accept the sale of the property to the Buyer but, they almost always retain the right to pursue the Seller for the entire amount of the original loan(s).

Why would a Buyer purchase a home that is being sold as a “Short Sale” ? Somehow, Buyers believe that they’ll be able to purchase a property at below market value, a bargain. The Buyer should investigate, through your real estate agent, the comparable properties that have sold in the neighborhood in the last 60 to 90 days. If the Buyer honestly believes that the property they are pursuing is a “bargain”, they should move forward with a qualified Negotiator and full service real estate professional.

Why do 80% to 90% of “Short Sales” fail to close?

1.) On the Seller’s side, they don’t fully understand that;

a. The Lender(s) will only “Approve” a sale that minimizes their potential loss on their mortgage(s), ie., the Lender(s) will require the property to be sold for its’ highest possible price.
b. The Seller backs-out once they learn that in many transactions, they will still be liable to the Lender(s) for any deficiency. In the State of Washington, a Lender may be able to pursue this judgment for up to 26 years. They can even sell this judgment to a third party collection agency for the pursuit of this deficiency at some point in the next 26 years.
c. If the Listing Agent or Negotiator doesn’t submit all of the documents required for review and approval by the Lender(s), the transaction will not be approved prior to it being foreclosed upon by the Lender(s).

2.) On the Buyer’s side, they don’t fully understand that;

a. This transaction will take 3 to 6 months to complete, if everything goes smoothly. Many times Buyers become frustrated with the process and terminate the Purchase and Sale Agreement because of this frustration and anxiety.
b. The Buyer will need to have the home professionally Inspected prior to submitting the Purchase and Sale Agreement to the Lenders(s). Remember, the Seller won’t have the money to make any repairs and the Lender, in most cases, will not provide a credit to the Buyer at closing for any repairs. The Buyer will assume the cost of the repairs and improvements.
c. The Buyer must submit a Pre-Approval Letter from their Lender as part of the “Short Sale Package” to the current Lien Holder(s). Again, this transaction will not be approved and closed for 3 to 6 months. The Buyer may not be able to lock-in an interest rate on their loan so, if interest rates go up during this time frame; their mortgage payments will be higher and, they may no longer qualify for the loan to purchase this property.
d. If the “Market Value” of the home increases before closing, the current Lien Holder(s) will not approve the sale at the agreed price. They will want the Buyer to pay more for the home. The flip side is that if the “Market Value” of the home decreases before closing, the Buyer may no longer want to purchase the property at the agreed price.

OK, so you’ve found a home that you absolutely love and you want to purchase it but, it’s a “Short Sale”, what do you do?
1. Find an experienced and knowledgeable full service real estate agent and sign a Buyers Brokerage Agreement. You’ll agree to pay a portion of his/her commission if the Lien Holder(s) will not allow them to receive their full commission. It’ll be worth it.
2. Sit down, in-person, with a qualified mortgage lender and become pre-approved for a loan to purchase the home. No, I didn’t say it’s OK to work with an on-line lender.
3. Confirm there is a qualified Negotiator working on behalf of the current owner. Your real estate agent should investigate the Negotiator for; their success rate, the reasonableness of their charges, and the process by which they’re able to succeed.
4. Engage a top-quality Home Inspector to perform a full inspection of the property following mutual acceptance of the Purchase and Sale Agreement with the Seller but, before the “Short Sale Package” is submitted to the Lien Holder(s) for review. Understand that neither the Seller nor the Lien Holder(s) will make any repairs or improvements to the property. If the Inspection Report identifies problems or issues, submit the Inspection Report, along with estimates for the repairs and improvements with the “Short Sale Package”.

Have fun and good luck with your purchase. If I can help you in any way or, if you have questions or comments about this article, please email me at Steve Meyers, Managing Broker, Keller Williams Greater Seattle. (206) 972-3328. Visit me at

Another article I’ve written that you may find useful is “The Pre-Approval Process Can Be Tricky?” It can be found at

Or, check out an article I’ve written on “Private Mortgage Insurance” at


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