Four Reason why Short Sales Fail

If you read my blog often, you know that I have done enough short sale business to know that this is among the highest risk "opportunities" in the business. Short Sales are generally a place for people that don't have to have a house for the next ~4 to 6 months--which is why investors are ideal candidates for short sales. Investors can afford to wait a very long time on a bank response and if they do not get one deal, they are off buying another homes elsewhere. For the average buyer who is trying to find a home to live during the next 3-4 months or within a defined period of time, this is not the right lake in which to fish. These fish just don't bite very often.

There are four major reasons why short sales fail more than they succeed. The Lender. The Listing Agent. The Seller. And The Buyer. Any one of these four sides of the deal can cause the deal to fall apart or be doomed from the start.  

The Lender. I have written extensively on why a short sale is almost never in the bank's best interest or focus. Banks do not want to do short sales. This is very low on the mortgage holders list of priorities to write a check to cover a short fall in equity on a home. (Click here for more details on Banks and Short Sales). Bottom line: this is the first big hurdle to clear and it is more complicated than most buyers, sellers or Realtors realize.

The Listing Agent. The agent listing a property can be a major weak link if they come to the short sale process with no more experience or process than a two hour class in short sales and the thought that this is just like any other real estate transaction. If the agent does not have a team to manage and expedite weekly communications with the bank and does not know exactly how to present the numbers and the financial package to the bank--it is most likely doomed from the start. I had a short sale agent recently tell me (before I showed his listing) that his seller was talking to the bank (his seller was talking to the bank) and the agent believed that short sales were simply a matter of giving the bank 81% of the listing value and the bank was good to go. Let me tell you now that you can not manage a real estate business based on myth and assumption. The very idea that there is some kind of universal magical percentage that banks will accept on a short sale or foreclosure is just plain silly and a myth. The bank is a business and property is an asset with real financials attached to it. There are no secret percentages the unlock deals by knowing the secret 81% hand shake. These myths have no validity in the real business world.

The seller. One thing that many people don't realize is that many sellers will walk away from a short sale before the bank responds to an offer (which can take many, many months). Often times the seller is going through a host of other problems, may be looking for a job, and may be concerned about many financial issues. The prospect of foreclosing may actually come as a relief at times, rather than waiting another undetermined number of months to hear from the bank on a short sale offer. The first few months with no word are painful, but tolerable. But after 4-6 months of waiting many sellers will often give up.

The buyer. Like the seller, buyers are often willing to wait 3 or 4 weeks to hear back on a short sale offer, but many buyers lose faith, patience or the ability to continue to hold on after 6 weeks...8 weeks...12 weeks...16 weeks or what can easily turn into a 6 month process. With such a long and undefined timeline from beginning to end, investors with long term horizons are best suited to wait many many months required to hear if the bank has accepted, rejected or countered on the original offer. It is a game of extreme patience for all involved. 


Short Sales are filled with uncertainty. The number of places where a short sale can unwind are many. Keeping everyone in the game over the duration of the process takes a team of professionals and very tenacious clients on both sides of the transaction. If anyone goes to sleep or turns away, the lights go out on the deal. Getting to the end of a short sale is a much harder journey than any buyer or seller realizes going into this kind of transaction. 

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