In a short sale, the mortgage lender (bank) holds the final authority to set and approve the sale price, as they are accepting a loss on the loan. While the seller and their agent list the home and negotiate initial offers, the lender usually determines the acceptable value based on a Broker Price Opinion (BPO) or appraisal.
The asking price is set by the homeowner and their agent but keep in mind that the lender has the last word. If the lender feels the agreed-upon sales price is too low, they will simply not approve the sale.
In a short sale, the offer is negotiated with the seller, just as in a traditional sale.
A short sale is an alternative to foreclosure in which a homeowner faced with losing their property sells their home for less than the remaining debt owed. The mortgage lender accepts the sale price as payment of the mortgage balance, even if it is less than the amount the borrower owes.
Key Takeaways:
In a short sale, your lender—not you—typically pays the realtor commissions from the proceeds of the sale. Commission rates in short sales are often 4-5%, slightly less than the traditional 5-6% in a regular sale. The lender must approve the final commission rate.
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 "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 There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.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 is when a property sells for less than what a homeowner still owes on the loan. Since the lender(s) will end up losing money, short sales can only happen if lenders allow it.
As stated above, the short sale process can get lengthy. There is a risk the homeowner can get into greater trouble with missing payments, and it can result in foreclosure. Foreclosure is a legal process that happens when the homeowner forfeits the property to the bank as a result of being unable to pay the mortgage.
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.
The 70/30 rule in negotiation is a guideline to listen 70% of the time and talk only 30%, focusing on asking open-ended questions to understand the other party's needs, motivations, and obstacles, thereby building trust, empathy, and finding collaborative solutions, rather than dominating the conversation with your own agenda. A related concept, the 30/70 rule, shifts focus: 70% on preparation (IQ) and 30% on discussion (EQ) early in a relationship, then potentially shifting to more EQ (emotional intelligence/rapport) as the relationship evolves.
After Short Sale Approval
Buyers may back out based on due diligence, appraisal, or financing at this point, just like any other contract. If it's within the guidelines of the contract, they're free to do so. If it's not, you'll get to keep their earnest money deposit as damages.
Banks typically accept short sale offers about 40-50% of the time, though acceptance rates vary significantly based on factors including the lender's policies, offer amount relative to market value, borrower's documented financial hardship, current market conditions, and the presence of multiple liens on the property.
A seller's maximum contribution to a buyer's closing costs depends heavily on the loan type and buyer's down payment, typically ranging from 3% to 9% for conventional loans, 6% for FHA/USDA loans, and around 4% for VA loans, with limits adjusted for investment properties or lower down payments to prevent appraisal issues.
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.
And there are practical reasons for being wary of shorting. Short selling exposes investors to theoretically unlimited losses if the stock price rises, leading to dramatic “short squeezes” where forced buying by short sellers drives prices even higher.
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.
Jim Chanos. James Steven Chanos (born December 24, 1957) is a Greek-American investment manager. He is president and founder of Kynikos Associates, a New York City registered investment advisor focused on short selling. He is known for predicting the fall of Enron before its collapse.
Red flags when buying a house include structural issues (foundation cracks, sloping floors), water problems (stains, musty smells, basement flooding signs, poor drainage), sloppy renovations (fresh paint covering damage, crooked finishes, DIY work), bad maintenance (old roof, deferred upkeep), and listing/market oddities (long time on market, multiple price drops, little info). Always get a professional inspection to uncover hidden issues with major systems like electrical, plumbing, HVAC, and roofing before buying.