Home stagers are noticing that home values have dropped significantly in many areas of North America with “short sales” becoming more common, although they still represent only a fraction of all listings.

A short sale occurs when (as defined in the Home Staging Glossary by Staging Diva) a lender agrees to allow a homeowner to sell a home for less than what is owed on the property. This typically occurs because the seller has a hardship (unemployment, medical issues, divorce) or because the seller owes more on the mortgage than the home is worth. A short sale allows the lender and homeowner to avoid the lengthy and expensive foreclosure process, and while a short sale often has a negative effect on a homeowner’s credit, the impact is typically less than that of a bankruptcy or foreclosure.

Home staging can play an important role in short sales, but it’s all about the timing.

The short sale process varies with each lender, but in many cases, the lender requires that a buyer submit an offer at the same time the seller submits the short sale paperwork to the bank. In this situation, it may not be in the seller’s best interest to stage the property since the lender will likely require an appraisal before approving the short sale. Home staging has been proven to raise the value of a home, so it could work against a seller who is counting on a low appraisal in order to obtain short sale approval from the bank.

In other cases, a lender might approve a short sale before the home is put on the market. (Similarly, a home might be considered an “approved short sale” if it has already gone through the process described above resulting in bank approval, but the buyer chooses to cancel the contract.)

In situations like these, home staging can be beneficial for the seller in order to better compete with other properties on the market. While the seller will not benefit directly from an increased sales price since the bank receives all proceeds of the sale, there is still an important reason for homeowners to put their best foot forward: The short sale process can take a long time with many buyers dropping out along the way, so it’s important to create a situation where a serious buyer falls in love with the home and is willing to see the process through from beginning to end.

For example, Staging Diva student Peggy Harrington of Wow Factor Home Staging waited until her property was approved for a short sale and then staged it. She had 4 offers within a day! She says, “We did not get anything at closing nor did we bring anything to the table. We did, however, get out from under the financial burden and were able to move on with our lives very quickly. To us, that was priceless!”

This topic is covered in my latest FREE REPORT, “Ask Staging Diva: Should I start a home staging business in this economy?” It’s been updated with 2010 statistics and the latest numbers for 2011, you can get your free copy here.

Home stagers, do you have a story of your own about how short sales have helped you build your business? Please share by leaving a comment below.

Debra Gould, The Staging Diva®
President, Six Elements Inc. Home Staging

Debra Gould developed the Staging Diva Training Program to create opportunities for others to grow their own profitable home staging businesses. More than 4000 Staging Diva Students around the world have been trained by Debra, who encourages anyone concerned about starting or growing a staging business in this economy to download her special report: “Ask Staging Diva: Should I start a home staging business in this economy?”

Photo credit: Woodleywonderworks