What is a ‘Real Estate Short Sale’
A real estate short sale is any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when a lender and borrower decide that selling a piece of property, thereby absorbing a moderate loss, is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure, and it helps a borrower avoid having a foreclosure appear on his credit report.
Explaining ‘Real Estate Short Sale’
A short sale, also known as a pre-foreclosure sale, is the act of selling a home or other type of property for less than the amount that the current owner owes his lending institution. A short sale is only possible if all parties involved, including those who are owed money, agree to take less than the outstanding obligation. Sales of this type are therefore slow and are known to fall through fairly often.
Things to Know About a Short Sale
Even though a short sale hurts a person’s credit score less than a foreclosure, it is still a negative mark on credit. Any type of property sale that is denoted by a credit company as “not paid as agreed” is a ding on a credit score. Therefore, short sales, foreclosures and deeds-in-lieu of foreclosure all negatively impact a person’s credit.
Further Reading
- The optimal choice for lenders facing defaults: short sale, foreclose, or REO – link.springer.com [PDF]
- An examination of heterogeneous beliefs with a short-sale constraint in a dynamic economy – academic.oup.com [PDF]
- Short-sale strategies and return predictability – academic.oup.com [PDF]
- REIT short sales and return predictability – link.springer.com [PDF]
- Short sales, institutional investors and the cross-section of stock returns – www.sciencedirect.com [PDF]
- Short Changed? The market's reaction to the short sale ban of 2008 – www.econstor.eu [PDF]
- Momentum in residential real estate – link.springer.com [PDF]
- Commercial real estate valuation: fundamentals versus investor sentiment – link.springer.com [PDF]
