What is a short sale?

Here on the Island we are seeing more and more properties being advertised as "short sales" but most people are still unfamiliar with what the term "short sale" means. Simply put, it is when the bank is going to consider taking less money than what they are owed on a property. For example, let's say there is a home listed at $500K and the Owner has a mortgage on it of $550K and there is a Buyer who makes an offer for $450K. The Seller can negotiate the contract including the price and then submit it to the bank for review. So the bank has to decide if they are willing to take a loss of more than $100K (when you calculate in commission).
This is where the hard part begins. "Short sale" contracts are not "short" at all. Once the contract is submitted to the bank it can take weeks or even months to get a response from them. I have been on both sides of the "short sale" process. As a Buyer's agent and Listing agent my experiences have been positive and have resulted in closings. However, it can be a frustrating to wait and not know what the outcome will be, but that is just part of the process and could be well worth it if you have been able to negotiate a great deal. Your realtor should check in with the bank once a week for an update so all parties are aware of the status of the contract.
A "short sale" is not the right choice for a buyer with a strict timeline to move. However, in today's market, I think "short sales" are definitely a great option to consider during the selection process.