A:

The traditional idea of a short sale is selling something you don't have so that you can buy it back at a lower price. The easiest example is stocks. Short sale of a stock involves borrowing stocks from a broker in order to sell them, and when prices fall, buying back the stocks to return to the broker and keeping any profit made. One option that is similar to shorting of a stock is to invest in ETFs that are short in real estate. These ETFs are typically designed to give inverse returns to a pool of real estate investments, usually REITs. By using real estate short ETFs an investor can get similar results to going short in an individual security.

The transaction usually referred to as the "short sale of a house" is the selling of a house that is in the pre-foreclosure state at a price that is less than the amount owed on the house. Houses that are usually short sold are houses in a pre-foreclosure state or houses that are about to be foreclosed upon. Usually, a homeowner short sells a house after notice of foreclosure has been delivered. Before a house can be short sold, the bank needs to be notified and give its approval for the sale.

For more on these options, read Purchasing A Short-Sale Property and our Exchange Traded Funds Special Feature.

This question was answered by Chizoba Morah.

RELATED FAQS

  1. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
  2. What does a high turnover ratio signify for an investment fund?

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
  3. How are American Depository Receipts (ADRs) priced?

    Understand what American depositary receipts are and how they work, including how the price of ADRs is determined by the ...
  4. How does a forward contract differ from a call option?

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ...
RELATED TERMS
  1. Chattel Mortgage Non-Filing Insurance

    An insurance policy covering losses that result from a policyholder ...
  2. Zombie Foreclosure

    A situation (or a home in this situation) that occurs when a ...
  3. Turnkey Property

    A fully renovated home or apartment building that an investor ...
  4. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  5. Strike Width

    The difference between the strike price of an option and the ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...

You May Also Like

Related Articles
  1. Chart Advisor

    Looking To The Mega Caps For Strength

  2. Fundamental Analysis

    What does a high turnover ratio signify ...

  3. Mutual Funds & ETFs

    Why Mutual Funds are Still Better than ...

  4. Options & Futures

    How does a forward contract differ from ...

  5. Investing Basics

    What is the difference between passive ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!