What is a Short Sale in Real Estate [2026]?

A short sale in real estate is a lender-approved sale where a homeowner sells a property for less than the total amount owed on the mortgage and selling costs. Short sales are usually used when a homeowner is underwater, facing a hardship, or needs to sell but does not have enough equity to pay off the loan in full. The lender must approve the sale, and the remaining balance may be forgiven, settled, or handled in accordance with the loan terms and state law.

 

What Is A Short Sale?

A short sale in real estate is when a homeowner needs to sell their home, but the seller is “short” the equity needed to fully pay off the mortgage and all of the fees involved with selling. (ie. real estate commissions, escrow, title, etc.) In a typical situation, the homeowner would need to bring in the difference in the money owed in order to sell the property.  In many cases, this allows the homeowner to avoid foreclosure.

A short sale is different.  In a short sale, we negotiate with the lender to accept less than the full amount owed to satisfy the debt, allowing it to be paid off “short”. Another benefit is that all of the fees involved with selling a home are paid by the lien holder (bank), and there is no out-of-pocket expense for you (the seller).

 

Short Sale Example With One Mortgage

Here is a simple example of how a short sale works:

Item	Example Amount
Estimated home value	$500,000
Mortgage balance	$550,000
Estimated closing costs and commissions	$35,000
Total needed to sell normally	$585,000
Sale price	$500,000
Estimated shortage	$85,000

In this example, the homeowner cannot sell the property through a normal sale unless they bring approximately $85,000 to closing. If they are unable to do so, they may ask the lender to approve a short sale.

If the lender approves the short sale, the home can be sold for market value, the sale proceeds are applied toward the loan, and the lender gives written approval for the transaction to close. The lender’s approval letter should explain how the remaining balance will be handled.

What We See in Real Short Sale Transactions

After helping hundreds of homeowners through short sale situations, the most common issues we see are second liens, unrealistic buyer timelines, incomplete lender packages, valuation disputes, relocation questions, and confusion about whether the lender will waive the remaining balance.

This is why short sales require more than simply listing the home for sale. The agent or negotiator needs to understand lender requirements, hardship documentation, buyer timelines, valuation challenges, junior liens, and how to communicate with the loan servicer throughout the approval process.

A successful short sale is usually the result of three things working together:

1. A realistic market value.
2. A complete short sale package.
3. A buyer who understands the lender approval process.

10 Key Benefits of A Short Sale

• A short sale allows you to sell for a price (market value) that is less than the amount still owed on the mortgage.
• A short sale allows you to eliminate your mortgage debt. In most cases, the difference between the sale price and the mortgage amount is forgiven by the lender. (Learn more about deficiency rights HERE.)
• A short sale does less damage to your credit score than a foreclosure, which means you will be able to buy again sooner than if you went through foreclosure (foreclosures vs. short sales)
• You have the dignity of selling your home vs the bank kicking you out.
• A short sale allows you to stay in your home until the sale is completed vs the bank kicking you out.
• A short sale is completed on your time frame vs the bank’s.
• In a short sale, you pay nothing. The bank pays all of the fees.
• A short sale is 100% “as-is”. You do not need to make any repairs to your home.
• A short sale can be handled discreetly.
• Receive “relocation assistance” from the bank.

What Is Required to Complete A Short Sale?

As you research short sales and read different articles about “what is a short sale”, you are going to find conflicting and oftentimes incorrect information.

Here is what is required to complete a short sale:

• Your home’s value is less than the balance remaining on the mortgage plus the fees involved with selling.
• You have an extenuating circumstance that puts you in a position where you either can no longer afford to pay your mortgage OR you can no longer stay in the home. (We have a detailed explanation of Short Sale Hardships that you can read more about HERE.)

Here is what is not required to complete a short sale:

• You do not need to be in foreclosure.
• You do not need to be out of work.
• You do not need to be behind on mortgage payments.

Understanding a Short Sale (Real Estate)

What is a short sale in real estate? The term “short sale” refers to the fact that the property is being sold for less than the balance remaining on the mortgage. Unfortunately, the process to go through a short sale is not “short.”

While there are more than a few requirements to qualify for a short sale, the steps and negotiations that go on “behind the scenes” with your lender(s) are quite extensive. They are very paperwork-intensive transactions, and they are not an easy process. It is something that requires a professional or a team of real estate agents with an extensive background in short sales and connections within the banks.

Overall, there are a lot of misunderstandings around short sales. One common misconception is that lenders just want to be rid of the property and will move quickly to get as much money back as possible. There are some cases where a short sale may be a “good deal”, but in reality, the lender will take their time to recover as much of their loss as they can. Just because a property is listed as a short sale does not mean the lender has to accept your offer, even if the seller accepts it. This is why you need an expert on your side.

We have put together a detailed explanation of the Short Sale Process that you can read through HERE.

Why Would A Lender Accept a Short Sale?

It all comes down to the numbers. Banks and the investors that own your mortgage are in the business of making money. In most cases, accepting a short sale is going to cost them less money than it would if they let your property go into foreclosure. Typically, the foreclosure process takes longer, the property sits vacant, there is more risk for vandalism or damage, and overall, the legal fees involved in the foreclosure process can be costly. By accepting a short sale, the lender is able to avoid the lengthy and costly foreclosure process.

Why Do Homeowners Choose To Do a Short Sale?

For homeowners, short sales are generally preferable to foreclosures for multiple reasons. A short sale can be used as a tool to delay the foreclosure process if you are already behind on mortgage payments and/or your home is already in foreclosure. A short sale will give you some control over the process and time to find another home, while a foreclosure happens on the bank’s terms and ends with property seizure and eviction.

There is not any cost to complete a short sale, there is generally less impact on your credit (a foreclosure will linger on your credit report for seven years), and there may be tax advantages to completing a short sale vs foreclosure. If successfully executed, a short sale can mitigate the financial fallout of an unfortunate situation.

In order for a short sale to take place, both the lender and the homeowner have to be willing to sell the house to the new buyer at a loss. The homeowner will make no profit (and also will pay no fees), and the lender will lose money selling the house for less than the amount owed.

Is a Short Sale Better Than Foreclosure?

Absolutely – While a short sale is never an ideal situation to be in, in almost every circumstance, a short sale is going to be better than letting a property go into foreclosure. We have put together a detailed guide explaining the differences between a short sale vs foreclosure. Some of the bullet points are:

• Buying After a Short Sale – You will be able to buy again in a shorter time period.
• Effects on Credit – A short sale will have less impact on your credit score.
• Deficiency Judgements – You could be responsible for the lender’s losses after a foreclosure.
• Taxes After a Short Sale – After a short sale or foreclosure, there are potential tax implications and they can be minimized or eliminated in a short sale.
• Control – You are in control in a short sale vs the lender having the control in a foreclosure.
• Emotional Advantages – You avoid a “worst-case scenario” of foreclosure and are able to sell your home.

How is a Short Sale Different from a Normal Sale?

In many ways, short sales are similar to a traditional sale. Your home will be listed for sale and we will market the home for a potential buyer. Everything happens the same until we receive an offer from a potential buyer on your home. At that point, the real estate transaction pauses, and then we begin the negotiations with your lender. Once we receive the approval from your lender, the transaction is “un-paused”, we start the 30-day escrow period and close escrow the same as a traditional sale.

A short sale is different from selling your home at a loss because you will not pay any fees or commissions (everything is paid by the lender). If you chose to sell your home for less than you owe in a normal home sale, you would be required to pay all of the fees and the amount that you would be short to pay off the mortgage.

When you complete a short sale, you will need the lender to approve the transaction. The lender will not be concerned that the sale is less than the amount owed, but will want to make sure the sale is at market value. You will still work with a real estate agent (or team of real estate agents), but it is crucial you hire someone with short sale experience.

What Is The Short Sale Process?

The short sale process is very similar to a normal real estate sales transaction. You will work with a real estate agent to market and find a buyer for your home. However, your lender will also be working with you and your real estate agent throughout the process. We have a detailed outline of the short sale process that you can read HERE.

The steps in the Short Sale Process Are:

1. Interview and Hire An Agent
2. Contact your lender(s)
3. List your property on the market
4. Receive and accept an offer
5. Submit the short sale package to your lender(s)
6. Lender review
7. Receive and approve the short sale approval from the lender(s)
8. Escrow period
9. Close of escrow

Can I Receive Relocation Assistance for a Short Sale?

In many cases, a lender will approve relocation assistance. Relocation Assistance is paid at the close of escrow to assist with moving expenses and to make the transition to another home easier. The amount of assistance that is paid depends on multiple factors and the type of short sale you are approved for. You can read more on our Relocation Assistance page.

How Long Do Short Sales Take?

Lenders can accept a short sale within a month or two. The typical time period for short sale acceptance is 60 to 120 days. The time frame could be slightly shorter or longer depending on your specific situation, property, and lender(s).

You may have stories of a buyer or seller waiting six months or more, only to find out the offer on the property was declined. This can happen, but it is not typical. It is most likely the sign of an inexperienced agent handling the short sale negotiations.

What About Taxes After A Short Sale?

One of the most common questions we receive from homeowners considering a short sale or foreclosure, is “What about taxes?”. 

We are not tax experts and cannot provide tax advice, but we do have an excellent tax accountant that we highly recommend, and highly recommend you contact him or your tax accountant/attorney with any questions regarding taxes.

If you complete a Short Sale or have a Foreclosure, you may be required to report the loss as ordinary income if the lender cancels any of your outstanding mortgage balance. There are exclusions that you may be eligible for that are outlined in our Taxes After A Short Sale Section.

Buying A Short Sale

Is it possible for a buyer to get a good deal on a short sale? Absolutely – A short sale may be a great opportunity for you to find a property that is a little bit below market value. For instance, oftentimes, properties that are being sold as a short sale have some deferred maintenance and because of that, are being sold below market value. Make sure that your agent provides you with a list of recent active, pending, and most importantly recently sold homes in the area with similar characteristics for comparison. Lastly, do not fall into the misconception that just because it is a short sale, the price is automatically going to be discounted.

“As Is” Condition

If you are considering buying a property that is listed as a short sale, don’t expect any repairs to be done. Lenders will not pay for any repairs and often will not even pay some of the typical buyer fees that a seller would cover. Lenders expect the buyer to purchase the home in its current condition.

This can include important repairs and items like:

• A termite and pest report and clearance.
• Roof repairs.
• Other deferred maintenance on the property.
• Home warranty for the buyer.

Short Sale Buyer Guide

Above all, if you are a buyer and considering a short sale, or wondering “what is a short sale home”, make sure to read through our short sale buying guide. You need to get a good understanding of everything involved with buying a property that is listed as a short sale. Short sale houses can be a great opportunity to get a good deal on your next home.

Consult Professionals

If you have read through this and you are considering your options, the first step is to consult professionals. We are always happy to answer all of your questions, and there is never any obligation to have a conversation with us. 

Our team does not charge any fees, and we offer discreet consultations over the phone, at your office, or in your home.  We also have excellent recommendations for an attorney, tax professionals, and/or any other referral you may need. Short sales are complex transactions. If everything is not handled correctly, you may find yourself in even bigger financial trouble after the sale. This is why it is imperative you have a great team on your side. In California, short sale negotiations should be handled by a properly licensed real estate broker, a licensed salesperson working under a broker, or another legally permitted professional. You can verify license status through the California Department of Real Estate. (A license is required under section 10131(a) of the Business & Professions Code.)

If you are wondering how much your home is worth and trying to determine if you have enough equity in your property, feel free to contact us today, and we can put together a detailed market analysis to determine the market value of your home. We will also put together a “net sheet”, which breaks down all of the fees involved with selling to determine how much equity you have, or how much you are currently underwater on your home.