How Do Short Sales Work for Buyers?

Written by Steven PorrelloSeptember 14th, 20225 minute read

How short sales work for buyers | Buyer benefits for buyers | Buyer drawbacks | Summary | FAQs

A short sale is a home that’s selling below what’s owed on the mortgage. In most situations, the homeowner is facing foreclosure, and their lender has agreed to let them "fall short" of the mortgage balance and sell the property.

For buyers, short sales are anything but short — the process is often long and complex, with few sales closing in under 30 days.

Pros of buying a short sale
Cons of buying a short sale
  • Major discount
  • Less competition
  • Likely good condition home (though it'll be sold as-is)
  • Higher closing costs
  • Time-consuming and slow
  • Potentially uncooperative lenders and sellers

Because of how difficult they are to navigate, short sales are best handled with the help of real estate agents. Realtors certified in Short Sales and Foreclosure Resources are especially experienced with these transactions.

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How does the short sale process work for buyers?

Short sales are best suited for investors, house-flippers, and other professionals — anyone who's not in a hurry to move somewhere new.

Steps to buy a short sale:

  1. Partner with the right realtor
  2. Get preapproved
  3. Find a short sale
  4. Make an offer
  5. Get lender approval
  6. Inspect and close

1. Partner with an experienced realtor

The short sale process is long and complex, so it’s usually not a good idea to do it alone. A high quality real estate agent can help you:

  • Find short sales in your area
  • Run a CMA to get a good estimate of the property value
  • Help you package an offer and send it to the lender
  • Order an appraisal
  • Bring the sellers and lender to the closing table
  • Answer your questions about the short sale process

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2. Get preapproved

If you plan on using a mortgage, you’ll need to get a preapproval letter first — the seller’s lender will rarely take a buyer seriously without one.

Pro tip: Get a mortgage from the seller’s lender

If the seller’s lender knows you’re going to be a future client, they may be more willing to work closely with you.

3. Find a short sale

Your agent may know of some short sales in your targeted market, or they can search the MLS. You can also search for homes on your own by combing through public records for pre-foreclosures or by driving for dollars.

4. Make an offer

Your offer will likely need to be higher than 85% of the home’s appraised value to be competitive — though some lenders will accept between 50% and 85% for distressed properties.

You and your agent will likely need to research:

  • How much the homeowner owes on the property
  • Whether the homeowner has more than one loan
  • How much similar homes in the same area recently sold for

Your agent can also run a comparable market analysis (CMA) to help you estimate a property's market value, helping you arrive at a realistic offer.

Finally, you'll submit an earnest money deposit with the offer. If the sale drags on and you want to buy another house, the release of your deposit could take some time.

5. Get approval from ALL lender and lien holders

Once you submit an offer, the lender needs to approve it. Some short sales will have multiple lenders or lien holders, for instance, if a homeowner took out a home equity loan or line of credit.

The more lenders and lien holders there are, the harder it will be to get approval, as each one will have to accept a smaller piece of the pie.

Lender approval could take months

It could take 60 to 120 days before you receive a short sale approval letter. The bank could also reject your offer. Make sure you have a backup plan in case the deal falls through.

6. Get an inspection and close

The home will be sold as-is, so make sure there's nothing that will make the home unlivable for you.

Closing can take longer if the seller is slow to submit paperwork or the lender is slow to respond. You’ll also be responsible for paying all closing costs.

Benefits of buying a short sale

✅ You can get a good deal

Short sale homes often sell at a discounted price, typically up to 15% below appraised value.

✅ You'll have less competition

Because of their complexities, short sales don’t attract a lot of buyers.

✅ Home is likely to be in good condition

Short sales are often in better shape than foreclosures. Foreclosed properties often sit uninhabited for long periods of time, whereas short sales are still inhabited by the owners.

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Drawbacks of buying a short sale

❌ The process is time-consuming

Buying a short sale can take months, which isn't ideal if you’re looking to move fast. Most will take 60 to 90 days, though they could extend even longer than that.

❌ You're buying the home as-is

You're responsible for any repairs yourself. And if the home is vacant, your lender is unlikely to have the utilities turned on for a home inspection.

❌ Lenders can be uncooperative or slow to submit paperwork

The seller’s lender might be losing money on a short sale transaction. You can expect resistance, heavy-handed negotiations, disagreements, and lots of back-and-forth communication.

❌ You’ll pay more in closing costs

The seller’s lender won't pay fees like deed transfers, conveyance fees, or property taxes. In a traditional home sale, the buyer and seller share closing costs, with the seller taking most of the cut — not so in a short sale.

✍ Editor's note: Many short sales never make it to closing

There are far more opportunities for a short sale to fall through. Some common reasons for a deal to fall apart:

  • The seller cancels the short sale contract.
  • A foreclosure prevents the short sale from happening.
  • The seller files for bankruptcy.
  • The seller may not pay the “contribution,” which reduces the lender's losses. If the seller doesn't pay it, the short sale is not approved and will not close.


  • A short sale is a home that’s selling below what’s owed on the mortgage.
  • Short sales are ideal for investors, house-flippers, or buyers who aren’t in a rush to move in.
  • The process of buying a short sale can be long and complicated. Buyers are buying homes "as is," and they’ll be responsible for all closing costs.

FAQs about buying a short sale

Short sales are a good idea if you have plenty of time and you’re looking for a fixer-upper. But if you’re looking to buy a home right now, the buying process is clunky and can drag on for months.

Unless you're an experienced investor or house-flipper, a short sale runs the risk of buying a home with expensive repairs, taking longer than expected, or falling through — even after months of negotiating. You might also miss better real estate opportunities as a result.

For a buyer, a short sale means you’re buying a home for less than its mortgaged amount. In other words, the homeowners still owe money to the lenders, but they’re gotten approval to sell for less than what they owe.

Lenders favor offers that are at least 85% of the property's appraised value. However, in some severely distressed real estate markets, lenders have been known to accept offers as little as 50% of the appraised value.