Are you one of the many consumers who have decided that it is time to begin looking for a new home or investment property? Interest rates are low, prices are more affordable and inventory is high - the perfect formula for a buying opportunity. And, to make things even better, searching for what you want has never been easier thanks to all the easily accessible real estate sites that tap right into the Metropolitan Regional Information System (MRIS), our local multiple listing services.

As you focus on a community or area that is most appealing, you will most likely find similar properties priced competitively with one another. Then one pops up that looks too good to be true. It is priced well below the others yet seems to be the best of the lot. You call your Realtor, eager to set an appointment to see it and, potentially, put in your offer.

You learn that the home is indeed a "steal", but other prospective purchasers have also recognized the situation and are swarming. (Yes, even in this market!). You quickly decide you must throw your hat in the ring and write up a full price offer, only to learn that there are four other offers pending and the seller of the home must obtain "third party" approval before any contract can be accepted. You may even be tempted to sweeten your offer to higher than the asking price.

Normal home sale negotiations can be resolved in a few days or even a few hours. But, not this time. Why can't the seller make a quick decision? Who's the "third party"? Why is that approval part of the process, and how long will it take?

Welcome to the 2009 world of Short Sales. What many unsuspecting prospective purchasers are learning is that there are "underwater" home sellers in our market today who cannot sell their homes for the amount that is owed to the bank(s) to pay off the mortgage(s). And a key point here is that there may be more than one "third party" if there is a second mortgage involved.

These sellers are trying to do the right thing by not just walking away from their obligation to repay the loan(s) and, instead, attempt to negotiate a payoff that is less than what is owed. Unfortunately, since most lenders will not negotiate a reduced payoff with a seller until there is a purchase contract in play, it becomes very important to have an offer to present for consideration.

That's where the low listing price comes in. By offering the property for sale at an extraordinarily low price, the sellers entice many potential buyers, and several contracts may be offered. Upon receipt of potential offers, the lender(s) will more or less be forced to analyze the situation and determine what will be acceptable, if anything, as a minimum payoff to release the current seller from the loan and allow the property to sell free of encumbrances.

The process is not streamlined and can take weeks or, more often than not, months, particularly if more than one lender is involved. There is seldom any communication with the lender(s) during this "limbo" period, so no one knows what is going on while the waiting game is being played. In the end, the lender(s) can decide not to make concessions, leaving both the seller and the prospective purchasers with the unsatisfactory result of no sale.

The prospective buyer will have wasted precious shopping time and potentially lost other opportunities while they awaited the outcome of the lender's consideration of their offer. And, all too often, the lack of a negotiated payoff results in the seller being forced into a foreclosure situation and the property is removed from the market for a period of time while the legal processes evolve. In a situation where I wrote a contract for a buyer during Summer 2007, the short sale was not approved and the home was off the market for six months while the legal foreclosure process plodded on. My buyers eventually gave up, and we found them another home.

The bottom line here is that a really low offering price is often a tactic to ultimately benefit the seller. An offer is usually the catalyst to actually have the lender consider the viability of a short sale situation. Without an offer on the table, most lenders will not commit to a payoff reduction. The buyer who plays the game is the pawn who may or may not benefit in the end.

So, if you are tempted to get involved in a short sale situation because of the perceived bargain, please consider the downside before throwing your hat in the ring. If you are very patient, have no moving deadline and no restrictions on your loan lock-in with your financial commitment, a short sale might be for you. Just beware of the pitfalls and possible frustrations...and be prepared to play the waiting game.

Updated 3-5-2009.  Copyright Pat Fales.