Just as every cloud has a silver lining, every housing bust has a boom just around the corner. Several money-savvy home shoppers are taking advantage of this boom by shopping for short sales in real estate. If you’re hoping to find a home this year, consider getting a short sale. Not only can it save you as much as hundreds of thousands of dollars on your home purchase price, it might also put you in a neighborhood or city you otherwise could never have afforded.

Understand the basics of a short sale

In a nutshell, a short sale occurs when a lender agrees to take less than the amount it’s owed on an existing mortgage. A short sale occurs when a bank agrees to discount the loan balance of a seller who is upside-down on his mortgage. In other words, someone who owes more on his or her mortgage than the house is actually worth.

Here’s an example:  take a home in an upscale neighborhood that would have sold for $500,000 as little as two years ago. Say the family that lived in that home had a mortgage on it for $430,000. Now imagine that the bank had to foreclose on that mortgage and is now trying to unload the house as quickly as possible. Given the nature of the current economy, the bank might be willing to sell the house for as little as $300,000, saving the new buyer $200,000.

The pros and cons of short sales

Short sales are skyrocketing in number this year as more people take note of the ways to profit from such a sale. In fact, more than 14% of homeowners nationwide are currently underwater on their mortgages, making short sales much more common than in previous years.

The upside to short sales is that sellers are more likely to be current on their payments and to still be living in the home. This means the home is less likely to fall to disrepair because of vacancy, unlike many of the distressed properties involved in foreclosures. In fact, many short sales involve some of the finest homes on the market.

The ironic thing about a short sale though is that it’s rarely short – in the time it takes to close a deal, that is. For a short sale to succeed, the seller’s lender has to approve the new price and agree to take the shortfall as a loss. This last step can drag the process out considerably, often up to three times as long as a normal home sale would take.

How to land a short sale of your own

Despite the amount of time it takes to complete a short sale, it’s usually still well worth it. Many buyers and even realtors don’t care to deal with short sales, meaning you’ll have very few bidders to compete with. The key to landing a good deal on a short sale is knowing what and what not to do. Follow these tips to get a short sale that lands you in the home of your dreams:

• Be aware of the intricacies of short sales. In a short sale, you need to know what you’re getting into. You’ll deal with several different people, including the sellers’ lender, the sellers, and their agent. Navigating the interests of all these parties contributes to making the sale take a long time.
• Look for the most likely candidates. Don’t consider homes that have extra complications, such as properties with more than one lien against them or sellers who have two different lenders to cover their entire mortgage. It’s also wise to avoid homes where the seller already has offers on the table. If that’s the case, the seller’s agent probably won’t even submit your offer for approval until he or she determines whether the first one is rejected.
• Find the right realtor. Any realtor who works on a short sale will usually take a cut on his or her commission, making some reluctant to show you short sale listings. But this is not the kind of deal you want to make unassisted. A short sale takes a lot of detail-oriented persistence, so look for a willing, experienced agent who has closed short sales before.
• Be savvy about your price. Don’t use the current list price of the seller to set your initial bid. Instead, ask your agent to figure out the fair market value of the home by searching comparable short sales and foreclosures in the area. If the fair market value is lower than the list price, come up with an offer that is 10% lower.

Don’t give up on your short sale goals

Though short sales take a lot of work, they’re well worth it. Just remember, if you’re hoping to find a home through a short sale, you need to be persistent and you need to protect your interests. Don’t take shortcuts on appraisals or inspections and make sure you understand all the details of any contract you end up signing. Eventually, your hard work will pay off and you’ll end up in a great house for an even greater price.