How Much Will a Short Sale Cost?

A question that we often hear is "How much does a short sale cost?"

That's actually a three part question. Everyone knows that selling a house costs money, and in a traditional real estate transaction it's the seller that pays a lot of the costs, including real estate commissions.

A Short Sale however is a little different than a traditional real estate transaction. The home owner is the one that makes the decision of whether to do a Short Sale or not. Once the home owner decides that a Short Sale is the right solution for them to Avoid a Foreclosure, we then sign a listing agreement and get signed permission from the home owner to speak with their Lender.

After that the holder of the mortgage (the bank), since it is their money, will make all of the decisions regarding what they're willing to accept within for the Short Sale and what they will pay out, this includes all commissions, closing costs, etc. The homeowner does not pay the commissions.

The second cost to the home owner is decide what will cost them more a going through a Foreclosure or doing a Short Sale. The following chart shows the difference between the what the cost of a Short Sale vs Foreclosure is to the homeowner. This report Foreclosure vs Short Sale, shows the difference between these two in many areas including Credit Score, Credit History, Security Clearance, Employment, and more.

The third possible cost is after a Short Sale or a Foreclosure is completed the bank has the right to do one of two things to the now former homeowner. The worst case scenario is that the bank will pursue a Deficiency Judgment to recoup what was lost on the Foreclosure or Short Sale. This means that the former homeowner is responsible for paying off the amount the bank was short on the loan.

Another option the bank has is to take the loss on the Short Sale and than give the former homeowner a 1099 for the bank's loss. The former homeowner will than have to report the amount that the Lender was short as earned income.

There are some strategies that can be employed (depending on the situation) that enable the homeowner to not have to pay. When we meet with our clients we explain the possible risk and the most likely outcome for the homeowner and we explain what needs to happen in order for us to get there.

If you meet a real estate agent that tells you that a Short Sale is like a “get out of jail free card” and that you will not have to pay anything and can just walk away, well then run away from that agent. They don't know what they're doing and there's a huge chance that they'll botch your Short Sale, meaning that you'll probably end up going through Foreclosure. Get our free report Qualify a Short Sale REALTOR to know the questions you must ask any real estate agent you're considering hiring. There's too much at stake to pick the wrong real estate agent.

Lastly, if you're asked to pay anything up front – then move on, it's probably a scam. You should never have to pay any up front costs in order to do a Short Sale.