“Real estate short sale” is a very popular concept at the present. The popularity of real estate short sales in TV and other media can be attributed to financial institutions choosing them over foreclosure in a negative real estate market. Real estate prices are lower now than they have been in a long time and the amount of time it takes to sell a piece of real estate is rising. It is no exaggeration to say that some regions are experiencing a virtual market meltdown (the Detroit market is one good example). Declining real estate markets are the primary reason for the rise in short sale real estate opportunities.

Banks undergo a real estate short sale when they let a property be sold for an amount of money that is less than what it is worth. Since a short sale requires an significant financial situation for a bank, many institutions require two conditions before they will agree to a short sale. Foremost, you will need to have a market value that is in such bad shape that the sale price of the property cannot cover the balance on the mortgage. A further condition is that the owners of the property must not be able to continue making mortgage payments on the property.

As an example, suppose a property was purchased five years ago for 217,000 dollars with an adjustable rate mortgage. The owners decided two years later that they needed a second mortgage of 10,000 dollars, bringing their total to 227,000 dollars. Home owners typically have made only a negligible dent in the amount of money that has gone towards paying off their debt in five years. It’s also likely that similar homes have a property value of 215,000 dollars and that the adjustable mortgage rate has risen four points. Once one of the owners loses their job, the situation is ripe for a real estate short sale.

Rather than go through the expense and time delays that a foreclosure proceeding would require, the bank may decide that allowing a short sale makes more sense in the long run. It’s better to accept a definite amount of money right away, so that the property can be off the bank’s book, than to accept an unknown amount at a distant point in the future. In general, this is how the real estate short sale works, though of course, complications through stubborn owners and lenders can arise.

Admittedly, many owners may find the real estate short sale a very painful experience, but things could be much worse for them. The methods may not be flawless, but it will beat having a foreclosure on the credit report. On the other hand, a truly savvy investor can take advantage of these short sales for excellent buying opportunities.

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