Homeowners increasingly using short sales to avoid foreclosure

Short sales, where homeowners sell their property for less than they owe on their mortgage, are gaining traction as an alternative to foreclosure, according to a new report from Realtor.com. In a short sale, the homeowner works with their lender to sell the property at a loss.

The report indicates that short sale transactions increased by 30% since 2023, with a 16% year-over-year gain between 2025 and 2026. Notably, short sales now sell for a smaller discount compared to foreclosures, a reversal of a trend observed over the past decade. A distressed home sold via short sale now commands approximately 9% more of its estimated value than one sold through foreclosure.

"Even in a strong economy with home prices close to record highs, a small segment of households find themselves facing tough circumstances," said Danielle Hale, Chief Economist at Realtor.com. "The good news for struggling homeowners is that they have more options now than in previous decades." Hale noted that while short sales require an owner's initiative and can be complex, they offer significant advantages over the severe financial repercussions of foreclosure.

Beyond avoiding the long-term credit damage associated with foreclosure, short sales can allow homeowners to qualify for a new mortgage in about four years, compared to seven years after a foreclosure. However, the process can take longer, with sales potentially requiring up to 60 days more to close due to lender approvals. Short sales also attract about 20% less browsing interest on Realtor.com compared to regular listings.