What is a short sale on a home?
A short sale is a type of home sale that takes place when a mortgage lender agrees to accept an amount lower than what the seller owes on the mortgage. A homeowner may opt for a short sale if they’re struggling to keep up with their mortgage payments and want to avoid foreclosure, or if they want to sell the home but know they owe more than they can reasonably get for it.
While it may seem strange for a lender to accept a mortgage payoff for less than the loan amount, short sales tend to be less costly than letting a home fall into foreclosure. Ultimately, this type of sale lets the lender get most of its money back while minimizing losses for both parties.
» MORE: What is preforeclosure?
How does a short sale work?
Sellers typically must craft a hardship letter to their lender that explains their financial situation and their desire for a short sale. They also must list any other liens against the property, such as home equity loans or home equity lines of credit (HELOCs). Homeowners may also need to supply a list of assets, since having available funds to pay the mortgage will likely make them ineligible for a short sale.
Sellers must disclose to potential buyers if they’re selling the home through a short sale.
Sellers must disclose to potential buyers if they’re selling the home through a short sale. The home must also be priced according to local market conditions, and it may need to meet other requirements.
According to Derek Bauer, a real estate broker at Real Estate One in Michigan, the short sale process varies by state, since each state has its own statutory periods and guidelines for short sales. In some states, sellers who go through a short sale are required to make up for the deficiency between the sale amount and the amount owed on the mortgage.
Considerations when buying a short-sale home
Short-sale homes may have an appealing price tag, but there are several drawbacks to consider.
The process can be slow
A short sale can take anywhere from several months to a year to process. With that in mind, you may not want to pursue a short sale if you need to close on a home and move quickly.
In the meantime, the buyer is often required to commit to a minimum period while the seller goes through this process. This time could be precious to a buyer, who may miss out on other properties while they wait.
The home may be sold as is
Most short sales are sold as is, meaning the seller won’t make any required repairs or negotiate on repairs before closing. The buyer is responsible for making repairs to get the property move-in ready, which can chip away at the savings they hoped to get by purchasing a short-sale home in the first place.
The short sale may not be approved
Another problem with short sales is that buyers may incur the cost of inspections and appraisals, only for the sale to be denied by the lender. In this case, the buyer loses several months waiting for the sale to go through, as well as the money they spent on these items.
They may be hard to find
It’s generally difficult to find a home through a short sale. Home-listing sites like Zillow or Realtor.com sometimes list short sales and foreclosures. You might also be able to find homes by speaking with local real estate agents, who might be aware of homes coming to the market.
FAQ
What is a reasonable offer on a short-sale home?
A reasonable offer on a short-sale home varies based on the property in question and local market conditions. If you want to purchase a home through a short sale, your best bet is to work with a qualified real estate professional who can help you craft a fair offer that’s likely to be accepted.
Will I have to get an appraisal on a short-sale home?
Submitting an appraisal with an offer on a short-sale property can better position you to land a deal, particularly if you're offering less than the asking price and the appraisal backs up your offer amount.
How is a short sale different from a foreclosure?
There are several differences between a short sale and a foreclosure, starting with who owns the property during the sale process. In a short sale, the borrower still has ownership and legal rights to sell the property. They can also request a short sale from their lender without having missed any payments on their mortgage.
In a foreclosure, ownership is transferred to the lender, and the bank is selling its own asset directly. The foreclosure process typically begins after a homeowner has failed to keep up with the payments on their mortgage for at least three to six months.
Can an owner profit from a short sale?
Homeowners don’t receive any profits through a short sale, since they’re selling the property for less than they owe on the mortgage.
How does a short sale impact a seller’s credit and future homebuying?
If you’re the seller in a short sale, you can expect your credit score to take a hit when the short sale shows up on your credit report. Short sales reported without a deficiency balance might have less of a negative effect on your score than those reported with a deficiency balance, which can impact your score similarly to the way foreclosure would.
A lower credit score can affect your homebuying potential, or at least prevent you from getting less favorable loan terms on a mortgage than if you had a higher credit score. As with other negative marks, a short sale can stay on your credit report for up to seven years.
Bottom line
Homes sold through a short sale come with an added layer of risk. Not only are short sales typically offered as is, but they also can take months to process and they have a higher likelihood of being denied by the lender. Still, short-sale homes may come with attractive pricing that can make the extra time, risk and hassle worth it. Ultimately, a short sale may be best for a buyer who has time to wait it out and won’t experience problems if the deal falls through.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- U.S. Department of Housing and Urban Development, “Avoiding Foreclosure.” Accessed Jan. 29, 2026.
