According to Zillow.com almost 14% of homeowners are underwater on their mortgages, meaning they owe more then the current market value of their home. However, not all of that 14% are distressed properties/run down and worn foreclosures. Many sellers are still living in these homes and some are still current on their payments, just struggling. In this types of situations, the bank generally agrees to lower the loan balance for a seller who is too behind on payments and the home is losing value. This is called a short sale.

While the name would imply a certain amount of rapidness, they are not always short transactions.  In order for a sale to be completed, the seller´s lender has to agree to the price proposed and agree to take the subsequent loss in value.

Lets look at some of the ins and outs of taking on a short sale. First many people are involved: the sellers, the seller´s agent, and their lender. This is another reason why the process can take longer then expected, while a normal sale could take as less as 30 days. Short sales generally take anywhere from two to six months. Yes, while banks are generally agreeable to short sales loss instead of a larger foreclosure loss, a lot of owners are trying to get short sale approval and the lenders and banks are being bombarded with short sale requests.

Another key factor is that some Realtors are not thrilled to partake in a short sale, as lenders may expect them to take a lower commission, hence making lenders not keen on showing any short sale listings. However, it is not advisable to take on a short sale without having a professional Realtor by your side. Loni Parmelly, the author of Success in Short Sales, suggested that when interviewing Realtors, you should ask them how many short sales they have closed and if the amount is less then two, look for someone else.

What kinds of short sales should you generally avoid? Pass on any that have too many outstanding factors, such as one that has incurred more then one debt. Having to work with 2 lenders can definitely drag down the process. Also, try not to look at homes that have multiple offers pending, as the seller´s agent probably wont bring up your offer until the first if rejected, so that tougher negotiation is required.

How does the process work in general? First get preapproved for a loan, almost no banks will consider your bid or offer without one. Once that is taken care of, you can submit your bid. What should you go by when determining your bid? The current list price is not a reliable place to look, as most seller agents under price it to attract more buyers and the bank would generally not accept such a low offer. Have your agent do some research and look at similar home sales in the area, focusing on other short sales and foreclosures to get a better idea. It is recommended that you set your offer at 10% lower then the fair market value, if it is lower then the listing price. Once your bid is submitted by the seller´s agent to their lender you will be required to sign a sales contract. Parmelly also remarked that it is a good idea to see if the lender will take on the closing costs in the contract. Also, make sure your Realtor is clear on the fact that you will not have an appraisal or property inspection until your offer is approved, otherwise you will be out a lot of money if your offer is rejected. The lender will also probably require you to make a deposit when turning in the contract. However, it is not wise to shell out more then $3,000 before the bid is accepted, which will give you some leeway to bid on other homes or leave the sale if it gets too complicated.

Some more good tips are to be sure to nag. After the offer is submitted it could be a long whole before you get a response, so call your Realtor once a week so they can get on the seller´s agent on contacting the bank negotiator. Parmelly, a former loan negotiator for lenders for over 16 years, stated that negotiators could have up to 400 files stacked in front of them. Your agent can help the seller´s by showing the agent what comparable homes were used to make up your bid.

Finally, when the bank does send their counter-offer, look at it as a guideline and not a hard set number. Amy Bohutinsky, a spokesperson for Zillow.com, said that normally the lender´s amount comes from their own research from the local Realtor they hire and the outstanding debt on the home. They normally want to sell for at about 90% of the home´s value. If the counter-offer isn't what you are looking for, you can counter it. If from the time you made the bid, the market has been relatively flat, try to offer 5-10% less then the bank´s offer, or if the market has been steadily declining, offer less and show them how much the value has depreciated.