Short sales yield 9% more than foreclosures now

Short sales sold at a smaller discount than foreclosures starting in January, the first time that's happened since Realtor.com began tracking these valuations in 2018. Distressed homes earned about 9% more of their estimated value as a short sale than as a foreclosure.

Foreclosed homes have sold in a fairly steady range, 25%-30% below estimated value, while the short-sale discount has been far more inconsistent, starting around 30% in 2018, then jumping to 50% in 2022 and before falling to about 20% by early 2026. During the price run-up in 2021 and 2022, homes appreciated faster than these deals could close, pushing short-sale discounts to their widest point. As the market cooled over the past two years, that lag faded and the discount snapped back, the release said.

But research from the Federal Reserve Bank of Philadelphia of the 2007-2012 housing crash found short sales sold for 9% to 10% more than comparable foreclosures during that period, meaning the current premium is likely a return to the historical norm, according to the release.

"A short sale recovers more value for the lender and does less damage to the surrounding neighborhood, but the decision isn't the lender's to make," said Glen Morgenstern, economist intern at Realtor.com, in the release. "The homeowner controls the outcome, and a foreclosure lets them stay in the home without paying for 592 days on average. That free housing is worth more than any credit or timeline advantage a short sale offers."

Short sales rose in each of the past two years, and started 2026 with another spike, the Realtor.com report found.

Short-sale transactions increased 4% from 2023 to 2024, nearly 10% from 2024 to 2025 and about 16% annually in the first quarter of this year, according to Realtor.com. Still, short sales remain a small portion of the market, as roughly 30,000 took place last year, accounting for roughly 0.6% of all arms-length home sales and 28% of distressed sales.

"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, Realtor.com, in a press release Thursday. "A short sale can be complicated and requires borrowers to act before the bank forces their hand; however, it benefits them by shortening the waiting period before they can qualify for a future mortgage."

Despite their benefits, short sales, which allow homeowners who owe more than their home is worth to sell the property for less than the remaining mortgage balance, have been less common than foreclosures, trailing them by more than 2-to-1. 

Foreclosures have increased alongside short sales as well. Filings surged 21.3% through the first half of 2026, although still on a path back to normalcy following pandemic-era relief. Similarly, a rise in foreclosure inquiries has aligned with the end of Federal Housing Administration relief.

"The FHA relief programs expired three quarters ago, and we've seen foreclosure calls rise ever since," said Matt Layton, LegalShield senior vice president of consumer analytics, in a press release Tuesday.