This month I contributed a feature to the online magazine David’s voice. I had the opportunity to share my thoughts on purchasing forclosures and short sales with their audience. I am allways very clear with my clients when they ask to see short sales and foreclosures because they are unlike consumer owned sales in a few specific ways.
They key difference is that in short sales and foreclosures the bank that owns the mortgage plays a muh larger role in finalizing the sale price and contract terms. In both situations the bank must approve the sale price, terms of the contract, and ultimately has the final say on the contact to purchase. I am pasting the article below:
If you have been paying attention to the real estate market, you are probably aware that there are a number of homes on the market that are in foreclosure or in short sale situation. But, as a home buyer, what does it mean to buy a foreclosure or a short sale, and how is it different than buying a consumer owned property? Which is right for you? Each situation presents its own set of challenges and I think it is valuable to outline the differences here.
In a short sale situation, the seller owes more money to the bank than they can sell their home for and have incurred a hardship where the bank has agreed to accept less money than the seller owes them, in an attempt to avoid a foreclosure. The advantage to this situation is that the seller avoids having a foreclosure on their credit which destroys ones credit for 7 years.
Instead this short sale option tarnishes a seller’s credit for approximately 3 years. Short sales are often listed for less than market value, so they can be a good investment opportunity. But it is important to note that the lending bank will always have the final approval authority on sale, so buyers making offers on short sales must make a strong offer without concessions if they want the offer to be accepted and approved. When purchasing a short sale I caution buyers that they need to be patient and understand that their offer needs to not only meet the approval of the home seller, but also the bank.
In addition they need to understand that short sales can take much longer to close than a consumer sale (though it may seem backwards that short sale=long wait). Because of the number of asset managers and approvals required, short sales can take multiple weeks or even months longer than a consumer owned sale depending on the status of the deed transfer in the county. Hamilton County can take as long as 16-20 weeks to record the deed in a short sale situation.
In a foreclosure, the bank repossesses the property and assumes ownership. Foreclosure properties are often priced well below market value because the bank’s primary interest is in recouping as much of its investment as possible as quickly as possible. Therefore foreclosures can provide a unique investment opportunity to buyers looking to purchase property below market value.
The challenge with a foreclosure is that there is no one actively maintaining the property. In my professional experience, I have seen foreclosed properties in good condition, but more often I have seen foreclosed properties in extreme disrepair. In some cases foreclosures require substantial investment to repair the neglect and make the home livable. Depending on the home, the investment in repairs combined with the purchase price may make the total cost of a foreclosure more than the cost of a consumer owned home. Financing options are limited as well if you are not a cash buyer depending the home’s condition.
No matter how good a deal a foreclosure or a short sale seems there are always other things to consider aside from the price: the time it will take to close a deal, the complexity of working with a bank, and the additional costs in repairs to bring it to the neighborhood standard. Both situations present unique opportunities and challenges, but it is most important to make sure you are well aware of all these factors before agreeing to anything.
If you have any additional questions please feel free to call me and ask questions. I would be happy to provide you resources and information that will make your home buying experience exceptional.
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