Investing in Short Sales

[Brian Jobson]

So I'm a little confused on short sales right now. What I knew about the basics of a short sale are as follows:

• short sales occur when the lender agrees to accept a payoff amount that is less than what is owed.
• lender will not approve a short sale amount until the property has been listed and offers are not up to par with what the banks wants.

So that is the simplified version of what I know about short sales. My question is how do investors make money with short sales??

I ask this because I know that investors usually have mailers sent out to homeowners that fit short sale criteria, like pre-foreclosure properties, in order to source for deals.

I've heard investors say that once the process is agreed upon with the homeowner they will then negotiate with the bank directly, going back and forth until a suitable payoff amount is reached. Then they proceed with either purchasing the property or wholesaling it.

I don't understand how the bank would come to an agreement on a payoff amount without the home being listed.

Am I missing a step (or multiple) in the process somewhere? How does this work for REI.?