Short Sales & Foreclosures 101:

Important Information for Buyers

Our market has changed. According to one of the latest Realtors Confidence Indexes (RCI), 1 out of every 10 recent home sales in the U.S. has been a short sale. There are many deals to be had in the marketplace but buying a short sale or foreclosure is not the same as buying a new build property or a pre-owned property owned by an individual. As with any hope of profit, there is risk to be had. This is just as true with a short sale or foreclosure as it is with any stock investment. However, with the right REALTOR to guide you along, you can avoid the mistakes and misconceptions some home buyers experience.

Short Sales:

Definition: A short sale is a property owned by an individual or a corporation where the bank has agreed to allow the seller to sell the home for less than what is owed to a bank to avoid costly foreclosure proceedings. Thus, the bank is allowing the seller to "sell short".

Things a Buyer Should Remember Regarding Short Sales:

The term short sale is an oxymoron. Typically, short sales take twice as long or longer than a normal 30 day individual seller to individual buyer transaction. There is A LOT of red tape with the lender to cut through in order to get the deal done. Thus, it is important to hire an experienced real estate agent who has worked with short sales before.
You can get a good deal on a short sale, most of the time even better than after the property has gone into foreclosure, but the deal must make sense to the lender. The lender must still be able to make more money by agreeing to the short sale than they would make by going ahead with the foreclosure procedure, paying the legal fees and selling the property closer to market value. Thus, most lenders will not agree to a short sale of 50% market value!
A lender will not approve a short sale contract that is contingent on the sale of another home. If you are interested in purchasing a short sale, make sure that you can qualify to buy it without selling your current home first.
Be prepared to handle all repairs yourself. Given the fact that the seller does not have enough cash to make a mortgage payment and the lender is already taking a loss, the majority of short sell properties are sold "AS IS".

Foreclosures:

Definition: A foreclosure is a property in which the former homeowner was unable to make their mortgage payment forcing the lender, under the terms of the mortgage contract, to seize the property. This lender then turns around and sells the property. Some foreclosures are FHA or VA foreclosures, and some are HUD foreclosures. Procedures are similar but different on these types of foreclosures, with the greatest difference pertaining to a HUD foreclosure.

Things a Buyer Should Remember Regarding Foreclosed Properties:

Purchasing a foreclosure is typically an easier process than purchasing a short sale property. There is less red tape to cut through, so a closing can happen fairly quickly in most situations.
Foreclosures are also sold "AS IS", meaning you must be prepared to do any and all repairs after closing. This can be a problem with your lender as most lenders will not lend money for a property that is not in "liveable" condition.
Not all foreclosures are a deal. Yes, the lender does not want to hold onto a foreclosed property. However, most lenders have a strict set of guidelines they must follow when selling a foreclosures. Most have an appraisal done on the property and get a real estate agent's opinion of the market value as well. They will then list that home at it's current market value, taking into consideration it's condition. They will then drop the price based on their guidelines timeline.
You can always go in with a low offer. You do not run the chance of offending the lender. If the transaction makes sense, they will work with you. However, that transaction MUST MAKE SENSE. Do not go in with the misconception that a lender would rather sell at foreclosure at 50% of market value today rather than waiting a month or two to sell it at 95% of market value.
When looking at foreclosed properties, keep an open mind. The condition of these homes is typically rough. Most need new carpet and new paint to say the least. Consider the price you can get the property for and the value of the property after you make repairs, but do not fall into a money pit! Rely on your REALTOR's advice regarding market value now, and market value after repairs.

BW Home Team agents are experienced in both the short sale and foreclosure market, both on the buy side and the sale side. We can guide you and assist you into finding a great deal on your next home purchase! Contact us today!