Common Myths About Short Sales Debunked

10 December 2024

Short sales often get a bad rap. They’re misunderstood, surrounded by myths, and sometimes outright avoided by both buyers and sellers. But is all the negativity really deserved? If you’ve ever looked into short sales, you might have stumbled upon a treasure trove of misinformation. It’s easy to see why so many people shy away. That’s why today, we’re rolling up our sleeves and diving deep into the world of short sales to debunk the most common myths. Ready to get to the truth? Let’s go!

What Exactly Is a Short Sale?

Before we tackle the myths, let’s make sure we’re all on the same page. A short sale isn’t as complicated as the term might sound. It’s simply when a homeowner sells their property for less than the amount owed on their mortgage. The lender agrees to accept the reduced amount to avoid the hassle (and cost) of foreclosure.

Think of it this way: If foreclosure is the dramatic breakup, a short sale is the amicable "let’s part ways and stay friends." It’s not ideal, but it’s usually the lesser of two evils for everyone involved.

Myth #1: Short Sales Take Forever

How many times have you heard this one? It’s like the go-to excuse for anyone who wants to avoid short sales entirely. Yes, short sales can take longer than traditional sales, but it’s not an eternity. The waiting game largely depends on the lender’s efficiency and the complexity of the sale.

Some short sales wrap up in as little as 30 days, while others may take several months. That’s still lightyears faster than foreclosure processes in many cases. Also, with experienced real estate agents and proper communication, the timeline can often be streamlined. It’s not about "forever;" it’s about patience.

Myth #2: Short Sales Ruin Your Credit

Let’s clear this one up because it’s a doozy. No, a short sale won’t completely destroy your credit. Will it affect your score? Sure. But the impact is not nearly as bad as a foreclosure or bankruptcy.

Think of it as a bruise rather than a broken bone. A short sale shows lenders that you took a proactive approach to resolve financial challenges, which might make you less of a risk in the future. Depending on your credit history and overall financial picture, you might even bounce back sooner than you think.

Myth #3: Only Homeowners In Dire Straits Can Do a Short Sale

Here’s another massive misconception. Many people think short sales are only for homeowners on the brink of financial ruin. While it’s true that short sales are often used as a way to avoid foreclosure, they’re not exclusively for that purpose.

Let’s say a homeowner moves for a new job or needs to sell in a down market where property values have dipped. If they owe more on their home than it’s worth, a short sale could still make sense. It’s not about dire straits; it’s about financial strategy.

Myth #4: Buyers Always Get Rock-Bottom Deals

Short sales are often marketed as a bargain-hunter’s dream. And while buyers may snag a good deal, it’s not always the basement-level pricing some people expect. Lenders still want as much money as possible, so they’ll typically require the home to sell at market value—or close to it.

This isn’t a flea market where you can haggle for pennies on the dollar. Buyers looking for a sweet deal should temper their expectations. It’s more about fair pricing than excessive discounts.

Myth #5: Short Sales Are "As-Is" with No Room for Negotiation

Here’s where short sales get a bit of a bad rap. People often assume these properties are sold "as-is," and buyers are stuck with whatever problems the home might have. While there’s some truth to this (lenders don’t want to spend more money on repairs), it doesn’t mean buyers have zero negotiating power.

You can still request inspections, ask for concessions, or even negotiate repair credits. The key is to communicate and work with an experienced real estate agent who knows how to navigate these types of transactions. It’s not a "take it or leave it" situation—more like "let’s see what we can work out."

Myth #6: Banks Don’t Approve Short Sales

There’s a persistent myth that banks are unwilling to approve short sales. This couldn’t be further from the truth. Lenders understand that foreclosures are time-consuming and expensive. From their perspective, a short sale often means recovering more of their loan than they would through foreclosure.

Of course, approval hinges on specific factors like the homeowner’s financial situation, the market value of the property, and the completeness of the short sale package. But to say banks outright refuse short sales is a massive exaggeration.

Myth #7: Short Sales Are the Same as Foreclosures

This one might be my personal favorite because of how completely wrong it is. Short sales and foreclosures might seem similar on the surface—they both involve homeowners unable to pay their full mortgage—but the differences are night and day.

A foreclosure is when a lender forcibly repossesses a home and sells it to recoup their losses. It’s a legal process with harsher consequences for the homeowner’s credit and future buying prospects. A short sale, on the other hand, is voluntary, and while it impacts credit, the effects are far less severe. Comparing the two is like comparing apples to oranges.

Myth #8: You Don’t Need a Real Estate Agent for a Short Sale

Short sales aren’t a do-it-yourself project. Trying to handle one without a real estate agent is like trying to perform your own surgery—not a great idea. An experienced agent can guide you through the complexities, negotiate with lenders, and keep the process moving.

They’ll also help you market the property if you’re a seller or identify potential red flags if you’re a buyer. A good agent is worth their weight in gold when it comes to short sales. Trust me on this one.

Myth #9: Short Sales Are Rare

Some folks still think short sales are these rare, elusive creatures in the real estate world. That might have been the case in the early 2000s, but not anymore. During tough economic times or in areas with fluctuating property values, short sales become pretty common.

They’re part of the real estate landscape now, and while they’re not as frequent as traditional sales, they’re far from rare. So, if you’re considering one, don’t let anyone tell you it’s an odd or unusual choice.

Myth #10: The Seller Walks Away with Extra Cash

Let’s wrap up with one of the juiciest myths out there—the idea that sellers can pocket some cash from a short sale. Sorry to burst this bubble, but lenders typically prohibit sellers from making any profit.

In fact, most short sale agreements include a clause explicitly stating that the seller walks away with zero proceeds. The goal of a short sale is to satisfy as much of the unpaid mortgage as possible, not to put money in the seller’s pocket. So, if you’re a seller expecting a payday, it’s time for a reality check.

Final Thoughts

Short sales aren’t perfect, but they’re also not the big, bad wolf of real estate that many people make them out to be. They’re simply another option—one that can benefit sellers looking to avoid foreclosure, buyers hunting for reasonably priced homes, and lenders trying to minimize losses.

By debunking these common myths, we hope you have a clearer picture of what short sales are (and what they aren’t). Real estate is full of choices, and short sales might just be a viable one for you.