Short sales and foreclosures are often regarded as a surefire way to snag a great deal on a home. While this can be true in many cases, it is important to know the difference between the two, as well as what each type of sale involves.
Short Sales
- In a short sale, the seller is still the owner of the property, but they are behind or will soon be behind on their mortgage payments. Therefore, they must obtain permission from their bank to sell their home for less than what they owe, and the bank must approve all buyer offers.
- Oftentimes what a seller owes their bank is more than the home’s current market value. In these cases, the short sale asking price may actually be higher than other regular sale listing prices.
- Because the bank is already taking a loss with a short sale, there is typically not a lot of wiggle room on price.
- It can take up to 6 months for the bank to approve a short sale offer, in addition to the 45 days it will then take to close the buyer’s loan.
- Short sales are sold “as-is,” meaning no home inspection repairs will be made for the buyer. Therefore, it may be difficult to purchase a short sale if you are getting an FHA loan, as these loans tend to have more stringent lender-required repairs.
- If you are considering a short sale purchase, make sure you have the flexibility to wait a few months before moving in, and have your real estate agent check the comps in the area to see if it is worth the wait.
Foreclosures
- In a foreclosure, the bank owns the property outright.
- In most cases, the bank will set a date (usually 10 days after listing) when they will review all offers. This often creates a multiple offer situation among buyers, so you must be prepared to submit your best and final offer up front.
- Foreclosures are also sold “as-is” and many times prefer cash buyers.
- Foreclosures also have little wiggle room on price because the bank has already taken a loss and has priced it accordingly.
- Foreclosures tend to take less time than short sales because the bank is the sole owner of the property.
- As far as distressed properties go, foreclosures tend to yield better deals overall. But again, have your real estate agent check the neighborhood comps to be sure.
Short sales and foreclosures can be an excellent purchase option given the right scenario. With either type of sale, the buyer will likely need to be prepared to do quite a bit of cleaning up, fixing up, and repairing, so be sure that is built into your budget!
Posted on July 16, 2015 at 5:28 pm by Palmer Harned
