Buying a short sale property

A short sale occurs when a homeowner sells their property for less than the outstanding mortgage balance, with the lender's approval. The seller is "short" — the sale proceeds fall short of what they owe.

68 steps across 12 sections

1. Get Pre-Approved for Financing (Before You Start Looking)

  • Get a mortgage pre-approval letter from at least one lender (two is better)
  • A fully underwritten pre-approval carries more weight with short sale lenders
  • Cash buyers have an advantage — banks prefer certainty and speed
  • Ensure your financing will remain valid for 4-6 months (short sales take time)
  • If your pre-approval expires during the waiting period, renew it immediately

2. Hire an Experienced Short Sale Agent (Critical)

  • Find a real estate agent with specific short sale experience — this is not optional
  • Ask how many short sales they have closed and which lenders they have worked with
  • Your agent should know how to check: title status, existing liens, whether a foreclosure notice (lis pendens) has been filed, and total debt owed to lender(s)
  • An experienced agent can estimate likelihood of approval before you invest months waiting
  • Look for agents with Short Sales and Foreclosure Resource (SFR) certification from NAR

3. Find Short Sale Properties

  • Look for listings marked "short sale," "lender approval required," or "subject to third-party approval"
  • Check MLS listings, Zillow, Realtor.com, and bank-specific short sale listings
  • Research comparable sales (comps) in the area to understand fair market value
  • Drive by the property and assess the neighborhood
  • Be aware: some short sale listings have already received offers and are in lender review

4. Submit a Strong Offer

  • Price your offer based on comparable sales, not the listing price alone
  • The bank will compare your offer to a Broker Price Opinion (BPO) or appraisal — lowball offers are rejected
  • Include your pre-approval letter with the offer
  • Minimize contingencies — lenders prefer clean offers with flexible closing dates
  • Include proof of funds if paying cash
  • Your agent submits the offer to the seller, who then signs and forwards it to their lender

5. Seller's Lender Reviews the Short Sale Package

  • Authorization letter allowing the lender to discuss the loan with the listing agent
  • Seller's hardship letter explaining why they cannot continue payments
  • Seller's financial statements (bank statements, pay stubs, tax returns)
  • The signed purchase and sale agreement (your offer)
  • Comparative market analysis (CMA) or list of comparable sales
  • Preliminary HUD-1 settlement statement showing estimated closing costs
  • Listing agreement and proof the property was marketed on the open market

6. Lender Review and BPO/Appraisal (30 - 120+ Days)

  • The lender assigns the file to a loss mitigation negotiator
  • The lender orders a Broker Price Opinion (BPO) — a licensed broker visits the property and provides a market value estimate (less formal and less expensive than a full appraisal)
  • Some lenders order a full appraisal instead of or in addition to the BPO
  • The negotiator compares your offer price to the BPO/appraisal value
  • The lender's investor (the entity that owns the loan, often Fannie Mae, Freddie Mac, or a private investor) must also approve the sale terms
  • If multiple lien holders exist, each must independently approve — this multiplies the timeline
  • The lender will respond with one of three outcomes: approval, rejection, or counteroffer

7. Negotiate the Lender's Response

  • If approved: Proceed to inspection and closing
  • If countered: The lender may demand a higher price. Your agent negotiates. You can accept, counter back, or walk away
  • If rejected: The lender may reject because the offer is too low, the BPO came in high, or they believe foreclosure will recover more. You can resubmit with a higher offer or move on
  • Approval letters typically have a deadline (30-45 days) to close

8. Get a Home Inspection (Immediately After Approval)

  • Schedule a home inspection as soon as the lender approves the sale
  • The property is sold "as-is" — the seller will not make repairs
  • Budget for necessary repairs on top of the purchase price
  • Factor repair costs into your total investment calculation
  • If the inspection reveals serious issues (foundation, mold, roof), decide whether to proceed or walk away
  • Get specialized inspections if warranted: pest/termite, sewer scope, radon, lead paint

9. Final Mortgage Approval and Closing (30 - 60 Days)

  • Your lender orders an appraisal of the property
  • If the appraisal comes in below your offer price, renegotiate with the short sale lender
  • Complete any remaining underwriting conditions for your loan
  • Review the closing disclosure (at least 3 business days before closing)
  • Conduct a final walk-through of the property
  • Sign closing documents and fund the purchase
  • Receive the keys

10. Arm's Length Transaction Requirements

  • The buyer and seller cannot be related by family, business, or any other close relationship
  • There can be no side agreements or undisclosed payments between buyer and seller
  • The buyer cannot resell the property back to the original owner
  • Both parties must sign an arm's length affidavit at closing
  • These rules exist to prevent fraud — without them, sellers could arrange sham sales with accomplices, buy back their own home at a discount, and pocket the forgiven debt

11. What Causes Delays

  • Incomplete short sale package from the seller (most common — lender keeps requesting additional documents)
  • Lender reassigns the file to a different negotiator mid-process (resets the review)
  • BPO comes in significantly different from the offer price, requiring renegotiation
  • Investor (loan owner) has different approval requirements than the servicer
  • Multiple lien holders with conflicting positions on how to split the proceeds
  • Government-backed loans (FHA, VA) have additional bureaucratic steps
  • Bank mergers, staffing shortages, or internal policy changes during your wait

12. The BPO (Broker Price Opinion)

  • The lender hires a neutral broker — not the listing agent, not the buyer's agent — to assess the property's current market value
  • The broker visits the property (drive-by or interior inspection) and researches comparable sales within the past 6 months
  • The broker submits a value estimate to the lender, including photos, comparable sales data, and market condition notes
  • The lender uses the BPO to set a minimum acceptable price — typically the BPO value minus estimated selling costs (commissions, closing costs, repairs)

Common Mistakes

  • Not verifying the short sale is real
  • Lowball offers
  • Not hiring a short-sale-experienced agent
  • Not researching the property's lien situation
  • Assuming the listed price is the final price

Pro Tips

  • Target properties that have been listed for 30+ days
  • Check for lis pendens (foreclosure filing)
  • Run comps yourself
  • Ask the listing agent what stage the short sale is in
  • Cash or large down payment signals strength

Sources

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