In most cases, the seller does not receive any money from a short sale. Because the home is sold for less than the outstanding mortgage balance, all proceeds go directly to the lender to reduce the debt. The primary benefit for the seller is avoiding foreclosure, not making a profit.
The homeowner in a short sale is simply wanting to walk away from their current mortgage and avoid foreclosure. They will receive no proceeds from the sale and, therefore, are not too interested in negotiating any financial terms of the transaction.
The agent represents the seller, not the lender. In a short sale, the offer is negotiated with the seller, just as in a traditional sale. The offer is then submitted to the lender, not for an “acceptance” but for approval of the terms and net proceeds.
In a short sale, the lender typically pays most of the seller's closing costs, including agent commissions, title fees, and taxes, because they are accepting a loss to avoid foreclosure. The buyer is responsible for their own closing costs, but negotiations are key, as the lender must approve all expenses, and sometimes the buyer may negotiate for the lender to cover some costs to get the deal done.
In most short sale transactions, the lender (mortgage servicer) pays the real estate commissions, not the homeowner. The commission is typically negotiated and approved as part of the short sale approval process.
The "3-3-3 rule" in real estate isn't a single guideline but refers to different strategies: for buyers, it's about financial readiness (3 months savings, 3 months reserves, 3 property comparisons) or a financial affordability check (30% income, 30% down, 3x income); for agents, it's a marketing habit (call 3, note 3, share 3) or prospecting (talking to everyone within 3 feet). There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.
A Short Sale Will Damage Your Credit Scores
Some say short sales have less of a negative effect on credit scores when compared to foreclosures, but this claim isn't necessarily true. Short sales, as well as deeds in lieu foreclosure, are pretty similar to foreclosures when it comes to damaging your credit scores.
If you're purchasing a short sale, your goal should be to make an offer that reflects the realistic value of the property while also considering any necessary repairs. A fair offer that aligns with market value—supported by a strong preapproval letter—goes a long way.
The optimal window for submitting a short sale proposal is generally within 30 days of the foreclosure notice. The foreclosure process will continue as a short sale offer is being assessed. Placing an offer as early as possible is crucial.
Short sellers hope that the stock they're shorting will drop, so they can buy it back at a lower price and return it to the lender. The profit is the difference in price between when the investor borrowed the stock and when they returned it.
The 7% sell rule is a stock trading guideline to cut losses quickly, advising you to sell a stock if it drops 7-8% below your purchase price to protect capital, remove emotion, and prevent small losses from becoming catastrophic, a strategy popularized by William O'Neil's CAN SLIM method for growth investing. It assumes that truly strong stocks typically don't fall much below their buy point, so a dip signals something is wrong, requiring you to exit the trade to preserve funds for better opportunities.
In a short sale, the lender typically pays most of the seller's closing costs, like realtor commissions, title fees, and transfer taxes, because they are already accepting a loss on the mortgage to avoid foreclosure. Buyers generally pay their own standard closing costs, but the lender may also agree to cover some buyer costs, especially if the buyer has limited funds, as part of the negotiated short sale agreement.
The homeowner loses his or her house, and the lender loses anywhere from 20 to 60 cents on the dollar [source: FDIC]. This is important to remember if you fall behind on your loan. The single most important step you can take to avoid foreclosure is to communicate with your lender.
Sellers typically pay more in total closing costs, often 6% to 10% of the sale price, largely due to real estate agent commissions, while buyers usually pay 2% to 5% for lender fees, title insurance, and other costs, but these amounts are negotiable and vary by location and market. The seller covers the large commission for both agents, while the buyer pays for their mortgage-related expenses, but buyers can ask sellers for "concessions" to help cover their costs.
For a $250,000 home, closing costs typically range from 2% to 5% of the purchase price, meaning you'd pay roughly $5,000 to $12,500, but this varies by location, loan type, and lender, with government loans (FHA/VA) and specific lender fees impacting the final amount, plus prepaid expenses like taxes and insurance.