The House Flipper’s Guide to Great Short Sale Deals

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Finding a flip that is a good deal is hard.

The biggest reason for the difficulty is the intense competition — particularly in markets that are hot, as many are today. I have tried hundreds of strategies to find and secure good deals for a flip, including cold calling, making a bazillion offers, voodoo, praying and other superstitious antics.

The best strategy by far has been creating a pipeline of short sale deals.

There are still plenty of short sale deals to be had out there, even though prices are rising in many areas. A short sale is a type of real estate sale where the seller/owner of the house sells for an amount that is less than the amount of their loan.

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How a Short Sale Works

For example, let’s say you bought a house for $100k. If you got a traditional mortgage you would put something like 20% down, or in this case $20k. The other 80% or $80k needs to come from somewhere. The answer is that it will come in the form of a loan from a bank. If you sold your house for $100k, the next day you would (less fees, commissions, etc.) get $20k back, and the bank would get their $80k. However, if you sold your house for anything less than the $80k that you owe the bank, then it would be a short sale deal, and you would need the bank’s approval to go through with the sale.

Related: Two Reasons Why a Short Sale is Like Plastic Surgery

In the years before the financial crisis of 2008, many people were getting loans from banks and putting down 3% or less, instead of the usual 20%. Let’s say that this house you bought went from being worth $100k to closer to $50k. It seems drastic, but it happened all over the US. In this scenario you now “own” something that is worth $50, but you owe $80 on your loan. In other words, you are now underwater.

Even if housing prices go up 50%, you are still underwater. Doesn’t seem fair, right? If they drop 50% and then increase 50%, then one should be equal. Not true. If they drop 50% from $100k, then your home is worth $50k. If it increases 50% from $50k then it is only worth $75k. Remember, your loan is still $80k.

So assuming you are underwater, you have three basic choices: keep paying your mortgage, foreclosure, or short sale.

Many people get discouraged paying a mortgage for a house that is hundreds of thousands of dollars underwater, and it is likely not a good use of your precious funds. Getting foreclosed on is easy — just don’t make any payments and wait until someone like me shows up at your front step and tells you to leave. This process could take longer than a couple of years, so make sure to save up!

The other option is to do a short sale by selling your house for less than you owe. As I mentioned, the key in a short sale deal is that the bank needs to approve to sale.

Using a Short Sale to Your Advantage

Anyway, back to the point of how to make money and get a great deal on a short sale. The first thing to know is that the owner/seller is in control of who the home is sold to. The bank can’t run around trying to find a buyer — only the owner can. The bank ultimately has to approve the deal, but they can only approve deals that the seller/owner brings to them.

The other important piece to understand is that in a short sale deal, it can take a really long time for the bank to approve the price. You need to be patient and stick with it. Also know that other buyers may not have your patience. Talk to your agent network and see if any short sale deals have buyers that are getting antsy. The goal is to step right in afterward and replace a buyer who falls out.

Usually the bank will give a deadline on the approved amount, and as long as you can close quickly, you can step right in!

Related: 3 Things That May Have Crashed Your Last Short Sale Deal

Finding Short Sales in Your Area

A great way to find people who are underwater is to use ForeclosureRadar or any myriad of sources that list public foreclosures. Chances are that if their home is listed for foreclosure sale that they are underwater. Create a flyer telling people that you want to buy their home, possibly with the help of a real estate agent friend, and go around sticking them into mailboxes of people on your foreclosure list.

This isn’t a high percentage game — most people won’t respond. However, just a couple of short sale deals a year can make you quite the bundle of dough.

Next Steps

Once you find a seller who is willing to sell their short sale home for a good price to you, make sure to have a beer and congratulate yourself — for about ten minutes. Then you need to get back to work because the bank still needs to approve the deal. You want to have contractors already bid everything you are going to fix so that you are ready to go when the home closes. A lot of times banks will counter back on the price and so you need to know exactly what your costs are going to be.

Finding good flip deals is hard, but the formula is doable. Pound the pavement and be resourceful.

Good luck!

Where do you turn for the best deals on your flips?

Let me know your experiences in the comments below!

About Author

Conor Flaherty

Conor has experienced every aspect of the foreclosure and rental business for single-family homes. He was VP of Acquisitions at Silver Bay Realty Trust, and has flipped over 100 homes. Conor started a blog called Wall Street Slum Lord and is working on publishing his first novel.


  1. This is all much easier said than done. The big problem with short sales are the banks are ignorant of values. I am in the Northern California area and there are short sales with over 250 days on the market. The banks are unwilling to lower the price. I have made so many offers and the agent says the bank will not go under what the approved short sale price. So short sales are a complete waste of time!

  2. Careful on your suggestion to pay the owner cash outside of closing – I’m fairly certain that’s illegal. Basically you are facilitating the owner avoiding his obligation to pay a secured debt. Bad idea.

  3. I made my first short sale offer this week. It looks like I may get the backup position. This one listed for $30K, listed and went under contract the same day. Probably worth at least $45K wholesale.

    I guess these tricks all work, but are they ethical?

    • Conor Flaherty on


      First off, good luck with your offer! Where are you buying homes for 30K?! If it goes into contract the same day it sounds like it is being sold to someone like me… You are smart to get in back up position – never know what will happen in escrow!

      I think the ethical thing is a good question. My question for you is which part did you find unethical? Basically everyone makes more money, except the bank, but they have full information and we are just abiding by their process.

      Thanks for the comment!

      • Conor,

        The house is in St Petersburg FL, in a popular neighborhood of older homes. This one may or may not be something that can be salvaged. Clean lots are worth at least 50K. So the pricing is based on the land. A clean livable home sells for at least $100 per sqft. Fully restored probably 150-200 per sqft. The last 2 1000 sqft ones I chased went for $75K, needing new roofs and complete rehabs including rewiring replacing knob and tube.

        You are almost right…the banks are getting hit the hardest, but so are other investors or homeowners who might be interested in the property in an open market. I won’t argue there is some sour grapes here, and perhaps I need to adopt these techniques to succeed given the current rule book.

        I believe the banks require the property to be listed, the problem is the current owner decides which offers get presented to the bank. Common sense would say the banks are requiring the listing to recover the maximum amount supported by the market. The ethical question is should sellers, agents and buyers manipulate this process when they know better offers are available for the property?

        • Conor Flaherty on

          I think you ask a great question. I will say that “better” is somewhat of a subjective term. I have fallen out of one deal in the 500+ I have purchased in the last four years. Many times I have been in the back up spot for a SS deal where someone came in and offered the seller the world only to fall out later. This type of thing happens with some regularity, albeit probably less so now. I know I’m somewhat dodging your question, but agents who know my track record are getting their seller a reliable buyer who won’t back out at the last minute, which sometimes leads to foreclosure. I realize my answer is a bit self-serving 😉

          I also buy a number of off-market deals. I’m arguably manipulating the process with these deals too – using my broker/agent network to source deals that other people don’t have access to. This is commonplace in commercial deals, but still a valuable strategy in residential. The data is pretty clear that off-market deals sell for less than those listed, but if the seller wants to do it (privacy, needs cash quick, or whatever the reason) then I usually don’t have an issue with it. I will concede that there are situations where brokers/agents take advantage of a seller to double end deals.

          Hopefully being aware of some of my strategies (which I know other people use also) will make you more competitive in your offers. I do appreciate and respect your high integrity approach.

          Please stay in touch – would be interested to hear how your dealings in St. Petersburg are going!

  4. Hi Conor,
    I am trying to buy in Sacramento, CA. The banks are really being stubborn now. Even the listing agents agree that the pricing is somewhat high but they will not budge and on some that really needs a good amout of rehab. There are a few that are over 300 days on the market without a single offer!! On top of that the competition is pretty stiff. The good part is if you get a short sale accepted, the time period from the acceptance to close is so long that usually the prices have gone up. I try to make a monthly offer on those houses just to see what happens.

    Thank you,


    • Conor Flaherty on


      I think you are taking a smart approach. Making an offer really doesn’t take a whole lot of time, and sometimes the ones that have been sitting for a while end up being the best deal. I bought a number of homes in Sacramento while working for Silver Bay – we just did rentals though. It was towards the end of 2012 and we got priced out pretty quickly. Have you had much success with buying recently?

      Yes, it’s always nice when property values go up while you have it in contract. Have you been submitting multiple bids that show how much work needs to be done on a home with your offer? I really think this is the key piece – particularly for bank employees who need to justify the lower resale price.

      Anyway, keep up the good work, and thank you for the intelligent and thoughtful comments!

  5. Joshua Giese

    I understand that there are certain laws about assigning short sale contracts. Some people out there completely recommend not attempting to wholesale short sales at all for legal reasons. I’ve heard LLC agreements are a way to assign short sale contracts, but I haven’t found much information out there on exactly how LLC agreements work. Could you give me a few pointers?

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