Short sales are a way for homeowners to sell a home that they are no longer to afford, avoiding foreclosure, and reducing the damage to their credit. Unfortunately, too many agents and too many "short sale specialists" are undermining the process with bad practices or outright fraud.
A short sale is when a homeowner owes more on the home that it's fair market value. If you owe your mortgage company $300,000, but your house is worth only $250,000, the selling the house would require you to come up with $50,000 to cover the difference. This is called being "upside down" on your mortgage. Just because you are upside down on a house is not sufficient reason to do a short sale - you still need a place to live, and it's going to cost you something to do that. What is happening is that consumers are falling into financial distress, or finding that economic circumstances have created a situation where they cannot make payments on their house, or continuing to do so will cause them a problem. The process of a short sale sounds simple: you market your home at fair market value, submit a legitimate offer to the bank for approval, then close on the home. In practice, it's far more complex.

1. Contact a short sale specialist as soon as you are in trouble. Don't wait.  Most people wait too long to start the process. Once you fall behind on your payments, the lender is going to start foreclosure proceedings. Depending on where you live, the foreclosures process can take a few months to a year to complete. The foreclosure process does not stop during your short sale. If the foreclosure suit is adjudged before the sale is complete, you lose. The sale falls through and you're foreclosed.
   
2. Be SURE that the market analysis that determines your price is accurate! Here's how it works: your Realtor will do a market analysis to determine what the fair market value of the property is. The asking price of the home should reflect fair market value. Because of the situation, pricing below market value often encourages offer, but DO NOT price too far below fair market value. That works against you in a very big way.
   
3. Negotiate the offer to get the maximum possible price. Frequently, the initial offers for short sales are very low, because there is a belief that distressed properties are a bargain (sometimes they are) and the banks are anxious to get rid of them (they always are) so they will take a very low price (they almost never do). You should negotiate the price of your home as aggressively as you would if you were not in trouble. Why? Because any offer that is sent in to the bank costs you 45-90 days waiting for their approval. If the offer is too low, the bank is going to reject it, which means that you have to start all over again.
   
4. Don't submit offers to the bank unless they are legitimate! When an offer is sent to the bank, they will evaluate the price by: checking local values using their database - and sometimes sites such as independent or Trulia; they will hire one or two local, independant Realtors to do a BPO (Broker's Price Opinion) to determine market value: hire an appraiser to do an appraisal of the property. If the price opinions are higher than the offer submitted, then they will counter back at a higher price. Your Realtor MUST be able to defend the offer price that was submitted! If it cannot be defended, it should NOT have been submitted.
   
5. Find an EXPERT to help you with your short sale! You should not have to pay up-front fees to do a short sale. If a Realtor is experienced in the process, they should be able to manage the short sale for their commission. However, the complexity of negotiating a short sale requires a LOT of time, and a LOT of knowledge and experience. There are several national firms that specialize in short sale negotiation that do not charge ANY fees to the consumer - instead, they are paid by the Realtor from the commission received. Unfortunately, their approach to the short sale is both revenue and volume driven, so they are not always as on-the-ball as they should be. A better option that we have been using is working with a local title company (Windmill Title), who has negotiators on staff, and can prepare the necessary documents for your note-holder to review. They are compensated through the title policy, so there's no cost to you, or to your Realtor.