What is a short sale, anyway? A short sale is when a property sells for less than what a homeowner still owes on the loan. Since the lender(s) will end up losing money, short sales can only happen if lenders allow it.

So this is a good deal for buyers?

Possibly.  But...

Short sale properties can carry any number of hidden expenses or potential traps for unwary buyers to fall prey to. Perhaps more than any other real estate transaction, buyers will benefit from being as educated as possible in the process.

The best piece of advice when it comes to short sales: Expect the unexpected.

Here are some other tips:

1. Don’t gloss over any property problems

If a short sale has been vacant for any amount of time, it may have leaks, mold, termites, rot, or refuse, or it may have been picked over by thieves or currently occupied by squatters. The former homeowner might have also taken their anger at losing their home out on the walls, floors, cabinetry, etc.

Even if none of these things occurred, many short sales will still be fixer-uppers since it stands to reason that homeowners who can’t keep up on their mortgages are rarely able to keep up with maintenance and repairs, too.

2. Don’t pass on the home inspection

And make sure the inspector is highly rated. Closely read the review sites, ask your friends and co-workers. Take the time to make sure you have the best inspector you can hire.

You might want to consider hiring an inspector who specializes in issues such as termite, mold, and structural damage as these are all very expensive to repair.

Definitely be there for the home inspection. A good inspector will insist on your being present. Ask lots of questions, and get an estimate of repair costs. It’s a truism that homeowners always seem to underestimate how much fixing things costs.

3. Don’t ignore any legal or insurance information

City hall does cite homeowners for unpermitted renovations, and as recent events have shown, entire cities can be devastated if they’re not prepared when the water comes.

You’ll also need to make sure:

1. The seller hasn’t filed for bankruptcy. Short sales are considered a form of collection and bankruptcy filings mandate a halt to all collection activities.
2. The seller has actually defaulted. If the seller isn’t following the specific procedures a short sale requires, the deal can’t go through.
3. There isn’t a second (or third, or…) mortgage. Second and all subsequent lien holders must also approve a short sale, so even though it can still happen, it’s a lot of extra work with more opportunities for a last-minute fall-through.

4. Don’t think this will happen quickly

It might, but odds are it won’t. Banks don’t assign large staffs to handle short sales as they aren’t exactly in a hurry to lose money, so the pace will proceed at whatever suits the bank.

There’s also a lot of red tape. Protracted approval processes. Multiple departments each with their own deadlines and forms. It’s not uncommon for a short sale to take months.

5. Don’t fall in love with a money pit

If your home inspector gives you bad news, listen to them.

Objectively and dispassionately consider the house’s condition, inspection report, selling price and actual market value.

Ask yourself…

1. How much money will it actually—not optimistically—take to get the house in livable shape?
2. If the home’s value dropped 20 percent, would you still feel happy you bought it?
3. If you bought and rented out the property, would the rental income equal the mortgage payment?