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The term 'real estate short sale' is being bandied about more and more as of late. Real estate short sales serve as an alternative to foreclosures in an increasingly declining real estate market. The time it takes to sell a property is extremely high, and the prices on real estate have reached a considerable low. Throughout the country the crisis is so bad that many places are experiencing what is fair to call a market meltdown. It is because the market is so inhospitable that the need for short sale real estate has gone up so dramatically.

Banks undergo a real estate short sale when they let a property be sold for an amount of money that is less than what it is worth. There are two conditions that must be met before a bank is likely to approve this: Number one, the property's sale price has to be incapable of covering the outstanding mortgage balance. The second condition is kind of obvious, but it dictates that the owners will be unable to continue making mortgage payments on the property.

Let's look at an example property that was bought five years ago for the rate of 217,000 dollars with an adjustable rate mortgage. Additionally, the owners took out a second mortgage of 10,000 dollars, which brought their total owed to 227,000 dollars.

Remember that in five years the amount that the mortgages would have been paid off is negligible. In the same amount of time, the market values for similar properties are going for 215,000 dollars, while the adjustable rate has risen from 7 percent to 11 percent. Additionally, we end up with a real estate short sale situation once one of the owners has lost their job.

The bank may decide to save expenses and time delays that a foreclosure would cost by simply allowing a short sale. Banks do this because it allows them to accept a definite amount of money and because it allows them to get the property off their books. If the lenders and owners do not agree on the terms of the sale, complications can result, but in general, that is how the real estate short sale works.

A real estate short sale is not a very pleasant experience, but it certainly isn't the worst experience they could have. If nothing else, it certainly beats being forced to accept a foreclosure on your credit report. These short sales can give the smart real estate investor a great buying opportunity.