Hopefully, you will have little to zero involvement with short sales, which is when the seller and bank agree to settle the loan payoff for less than is owed on the home. We did many during the recession, and the biggest problem was twofold:

1. The requirement of the listing agent to make a continuous and diligent (almost daily) effort to reach out to the bank's (usually worthless) personnel and keep the transaction moving forward.
   
   
2. The requirement of the buyer and buyer's agent to understand that short sale approval is NOT instantaneous but rather, the end result of a lengthy process.

We used to write into our offers: "Buyer acknowledges that the short sale approval process is lengthy and typical wait time can exceed 120 days."

A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.

It's important to note that selling for less than you owe, wouldn't necessarily count as a short-sale, if the seller has enough money/assets to bring the difference to the table.

The bank is not going to accept the loss (the short), if the seller has the means to bear the loss.

From 2008 - 2012 short sales were a big part of our market.

A short sale arises when a homeowner stops making mortgage payments. Why? Job loss, illness, death, divorce, and other reasons.

In many cases, the homeowner would sell the house to escape from the debt and cash in on whatever equity the may have in the house.

A problem arises when the debt against the house is greater than its market value. This phenomena was quite common during the past recession. The house is term to be "underwater" with debt exceeding value.

The lender has the right to foreclose. However, foreclosing is expensive to the lender and they would already be losing money with a loan balance in excess or what they will obtain by reselling the foreclosed property. The amount to be realized from selling the "underwater" house at auction would be "short" of the amount needed to retire the loan against the house.

In a short sale, the house would be put up for sale. An offer would be accepted and signed by the owner and then presented to the lender with a request for the lender to accept the deal, approve the purchase, release the title to the new owner and write off any remaining balance of the loan. Banks were free to approve or deny the sale, They took over the rights of the seller...often making counter offers and carrying on other negotiations. Some short sale houses still ended up in foreclosure. Many short sale tranactions were approved.

The volume of distressed properties - short sales and foreclosed houses -  during the recession was a huge percentage of our market.

Now that equity has returned to most properties, we see very few short sales.

Nina Hollander has provided you with the definitive answer

Short sales are Satan's way to punish Realtors. (BTW they don't usually kill you but you know you are in hell if you are dealing with BOA on one).

Alan May obviously KNOWS short sales! Take his advice...and don't try to manage one before you have the proper training. 

The basic concept is that you bought the house for 800,000 and it's now worth 700,000.  In order to sell it, you need to convince all the lenders (1st, 2nd, etc.) to accept less money than they are owed.

Problems: Yes.  Banks can say no.  If the seller is behind in their payments, the bank can elect to foreclose and try their luck selling it at auction.

Other problem: banks can take FOREVER to approve the short sale.  From personal experience: my first rental was a short sale.  The buyers backed out after a year of waiting and bought something else.  The bank approved the short sale two weeks later and I was able to get substituted in for the buyer.

Problems for the buyers:  Besides the waiting, banks won't do any repairs.  Typically you need to have cash as they won't finance (if sold at auction).  If house has issues, it may not qualify for FHA or VA financing (which want a "move-in ready" home).

Nina Hollander has you covered. Is your instructor licensed?

I wish you all the best with your real estate sales. 

What I know about short sales and my experience with them could fill a book or two. 

my team rarely did a short sale and we made sure there was a short sale attorney who communicated for our seller once we had a deal in place....

I'm sure you'll have many good answers here... not from me!

Lets say I bought the house for $400K, but today it is only worth $300 K. 

I need to sell to go to my new job out of state.  I owe $350 on the mortgage, so if I sell, I could still owe money.  In a short sale, the seller asks the bank to take the $300K as the sales price, and waive the remainder of the loan.

Bank has to approve- this is a major hurdle- Seller needs to show that there is a need to sell or a hardship of some kind. 

THey happened a lot 10 years ago in the downturn of hte ecomony. It does hurt the sellers credit as well 

The homeowners have fallen behind in making their mortage payments. When the lenders will allow these homeowners to sell their properties for less than what they owe instead of letting the home go into foreclosure. 

If you have a client who needs help with a short sale, i'd recommend to refer them out to someone who knows how successfully negotiate it.

The bank accepts less than what is owed on the loan during a sale

Seller owes more than the Market Value . Lender agrees to take less .

I avoid them, life is too short for that kind of abuse.

Andrew,

What Nina Hollander explained.  A

Since you're a newbie, I'd say you've got plenty to learn before you mess with those guys. Short sales mean the mortgage exceeds what the house can net for. Lots of them years ago, now not so many but there are still holdouts. 

Really tough niche.

The property owner owes more than the house will sell for.

You have some good answers.

Do not take a shot sale listing unless you know how to handle one.

When you owe more on the property than what it's market value is you're going to come up short. Yes, I have had issues with short sales and no longer assist lenders with the disposition of their distressed portfolios. No more free rides for them!

A short sale is an agreement of the loan holder or holders to transfer ownership, with clear deed, for a price that does not cover the balance. In essence, the amount negotiated 'falls short' of the balance owned. (note: there may exist an insurance on the mortgage which in the old days translated into no real loss to the bank)

Any issues?

Issues is the other name for short sales.

Winter agents have all completed numerous short sales because in 2010, that was a dominate situation at the 'sweet spot' price points. The War Stories are abundant. The thing we all come to know and accept is Bank of Americas front-line of defense was, "We didn't get your FAX."

"CAn I mail it to you?" 
"NO, we only take FAX."

"Ok. Are you standing by the FAX machine?"

"No. I don't know where the FAX machine is. Someone brings to faxes to me."

I think I see an issue.

they are never short..... 

Andrew Cooper if the loan amount higher than property, lender accept lower payoff of the amount owed on the property.

Nina Hollander have you covered.

Short sale = long sale. I have not seen one for a very long time now.  

Short Sales are a CF  

If you Google this you will find a lot of information.

Siomething ZI used to do as an agent after the meltdown. Too long of an answer for this forum. Study hard, it's a jungle out there.

I am working 2 right now. Basically the seller owes more than the house is worth. I think most important is WHY this happens. People usetheir homes as a ATM and take equity loans squeezing out every penny. The appraisers are loberal with values. But the real or market value may be less. SOmething happens and the seller has to sell, but cant cause they owe too much. SO basically we ask teh bank to reduce what they owe to allow the home to be sold. It takes time, patience and lots of experience to negotiate one. And even more to get one to close. I developed a knack for it and word spreads. 

Short Sales is when people are behind on their mortgage and need to work a deal with the bank to get out of the loan, can take a long time.

When the Seller owes more than what you can sell the home for.

Good luck.