In a short sale, the bank allows the property to be sold for less than the amount of the outstanding mortgage. If the seller's bank doesn't give its consent, the short sale can't happen.
But some sellers simply decide to list their properties as "short sales" before even talking with their lenders, Gaylord says. These sellers don't realize that their financial situations might not meet the lender's criteria for short sales. So even if the buyer and seller settle on a price, without the bank's permission there won't be a deal.
That's why, when a home is advertised as a short sale, the buyer should ask whether the lender has agreed to allow the home to be sold for less than the outstanding mortgage amount. "Find out if there has been communication with the lender," Gaylord says.
Do a little investigation, too, he urges. If the buyer has gotten permission for a short sale, what was the bank's reason for granting it? Does that reason sound plausible (divorce, job loss, transfer)? And are banks typically granting short sale requests in that situation?