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If you enjoy reading thru real estate ads (yes, there are a bunch of us out there) you have probably noticed many homes listed as a "short sale".  A short sale might be called a "pre-foreclosure" sale or a "foreclosure avoidance" sale.  Generally, a short sale exists when the proceeds from the sale are not expected to pay off the loan balance, closing costs and commissions. 

Rather than walking away and letting the bank foreclosure on the property, the home owner (or more likely, his or her agent) contacts the bank and negotiates a minimum sales price that the bank will accept.  This often involves the agent providing a detailed price opinion (called a broker price opinion and it is very similar in detail to an appraisal). The bank may also require an independent valuation through an appraiser.  

The bank then agrees to accept less than the full amount of the loan balance in order to facilitate the sale and avoid owning a foreclosed home.  After bank approval, the agent will market the property, sometimes noting it as a short sale in the marketing materials.  Once an offer comes in, the bank has to approve it (unless it falls within a "pre-approved" range). 

If you are interested in purchasing a short sale, ask the listing agent if the short sale has been approved by the bank.  Some agents will market the property prior to contacting the bank.  If your offer is submitted to the bank for approval, know that there is often additional time involved versus the time involved in a traditional real estate sale (spent obtaining bank approval--banks are not in the business of buying and selling homes--they do loans--and so are inefficient at times when it comes to paperwork).  

The good news? Short sale sellers and banks are usually highly motivated...so can scoop up a good deal...but never assume a home is priced well just because its a short sale...do your homework. 

Go get'em! If you need help arranging a short sale or purchasing one, feel free to email or call.  johnsonlaw@sbcglobal.net (714) 864-5485.