Most residential agents working today built their careers in a market shaped almost entirely by appreciation. List it, sell it, move on.
Short sales and foreclosures were either a distant memory or something they’d only heard about from older colleagues. That’s probably been fine, because the market didn’t require much else. The market, though, has a way of introducing new skill requirements with little advance notice.
Why equity levels can be misleading
The $34 trillion in homeowner equity that keeps getting cited in the financial press sounds like a reason not to worry. It’s also somewhat misleading when you look at where that equity actually sits.
A large share, roughly 40 percent by some estimates, belongs to homeowners 62 and older who purchased their homes decades ago and have little intention of selling — housing wealth for that group recently hit $14.66 trillion, according to the NRMLA/RiskSpan Reverse Mortgage Market Index.
That equity is effectively parked. What’s left, distributed across everyone else, tells a more complicated story, particularly for buyers who entered the market during the pandemic surge.
Millions of buyers entered the market between 2021 and 2025 at or near peak prices, many using low-down-payment programs that left them with thin equity cushions from Day 1.
The industry defines “seriously underwater” as owing at least 25 percent more than a property is worth. Roughly 1.2 million homeowners already met that threshold in early 2025, with that number climbing each quarter. And that figure doesn’t account for the actual cost of selling, which typically runs 8 percent to 10 percent of the sale price once you factor in commissions, closing costs, concessions and transfer taxes.
Once selling costs enter the picture, the number of genuinely distressed borrowers may be closer to 2 million or more.
In practical terms, a client who appears to have equity on paper may actually have very little room to maneuver once a real sale is on the table.
The financial pressure on these borrowers has also compounded in ways that weren’t obvious at origination. Property taxes rose. Insurance premiums rose considerably in many markets, with average annual premiums up nearly 70 percent over the past five years, according to ICE Mortgage Technology. Student loan payments resumed. Credit card balances climbed.
A borrower who was approved at a 45 percent debt-to-income ratio a few years ago may now be devoting 60 percent or more of their gross income to housing and debt combined. There’s no cushion left for a broken HVAC or a roof that needs replacing, and many of these same buyers purchased older homes because newer construction was simply out of reach.
Deferred maintenance matters to agents because it quietly erodes value in ways that don’t show up until a transaction is already underway. A homeowner under serious financial strain will eventually stop maintaining the property, and by the time a short sale or foreclosure is on the table, the gap between the listing price someone hopes to get and what the property will actually support can be significant.
Full-year foreclosure filings rose 14 percent in 2025, per Attom, with the trend gradual enough that it hasn’t triggered widespread alarm. Gradual trends are also the kind that are easy to get caught flat-footed by.
Lenders, for their part, have been increasingly motivated to pursue short sales rather than go through the full foreclosure process, which averaged 671 days from first public notice to completion in early 2025. A negotiated short sale returns the asset in better condition, costs the lender less overall, and gets the property back into productive use faster.
The short sales skill set
That’s relevant for agents because short sales require a different skill set than a conventional transaction. Short sales involve a lender as an active third party, documentation requirements that go well beyond a conventional transaction and timelines that are genuinely hard to predict. Agents who know the process well may find that expertise more in demand than it’s been in years.
I’ve seen what happens when an agent isn’t familiar with the short sales process — and I’ve seen it far too many times. During the REO and foreclosure spike after 2008, time and time again, I was made aware of short sales that never made it to completion.
The reason? The agent, unfamiliar with lender requirements to complete a short sale, simply sat back after the contract was signed. They failed to provide documentation required by the lender, such as a hardship letter or pay stubs.
I’d estimate that almost half of what should have been successful short sales transactions never went through and, instead, turned into foreclosures simply because the agent hadn’t familiarized themselves with the process, which is really not that complex once one becomes familiar with it.
Now, it’s possible, and likely even probable, that a significant portion of the sales opportunities will come in the form of short sales. Agents need to understand the process before that surge is on top of them.
Right now, agents and brokers should be getting familiar with short sale procedures, understanding what lenders actually need from a listing agent and knowing how to have an honest conversation with a seller whose equity position is weaker than they realize.
None of this means the market is headed for a repeat of 2008 or that every agent needs to pivot their entire practice. What it may mean is that the next few years will reward agents who are comfortable navigating complexity, particularly for the segment of buyers who stretched to enter the market and are now feeling the weight of that decision.
That group is larger than the headline numbers suggest, and they’ll need competent representation when the time comes.
Michael Krein is president of the National REO Brokers Association and author of the Certified Short Sale Expert training programs.
