Lately, there has been a lot of news about foreclosures and short sales. Let’s first define the terms. A foreclosure occurs when a homeowner can no longer make the payments on his or her loan. The lender attempts to recover the balance of their loan by forcing the sale of the house.
Instead, a distressed homeowner may try to negotiate a short sale with their lender who may accept a deal in which the homeowner sells the home for a lower amount than owed, usually less than the mortgage balance. This allows the seller to get out of a home that they can no longer afford while avoiding a lengthy and damaging foreclosure.
Let’s compare the advantages and downfalls for buying foreclosures and short sales.
Foreclosure and Short Sale Facts a Buyer Should Consider
A buyer is always looking for a good bargain, a safe investment and an easy closing. Some say that buying foreclosures is a great way to find below market property and others say that short sales are just a lot of headaches with all the necessary and time intensive procedures. Every sale is different but below are some guidelines to remember when shopping foreclosures and short sales.
Buying a foreclosure
By the time a foreclosed house is ready to be sold, it will be owned by the bank and handled by an Assets Manager. They will have never stepped into the house and won’t know what’s wrong with the house. This could be risky for the buyer especially since the bank isn’t required to give you full disclosures, unlike a seller in a normal transaction.
A bank isn’t in the business of home-owning so they want to sell the property and recover their loss. They will get a simple appraisal and generally price the house 5% below the appraised value of the home. There is opportunity for a good deal. However, this often earns the bank multiple offers and a bidding war can cause that “low” price to spike. Without full disclosures, is it worth engaging in a bidding war that results in an effective market price? However, great foreclosures are out there. If you know what you want and how to assess a property and you are prepared to buy, have an advocate on your side. Connect with a Californian Estates agent who can help you find that jewel.
Buying a short sale
In the case of the short sale, the owner knows from the outset that they will make no money from the sale. They are just happy to be relieved of the debt. So they aren’t looking to haggle prices, they are looking to get out of the home as soon as possible.
The seller will be required to complete all disclosure documents. However, the downside is that the transaction may take up to 6 months. There is much more paper work involved which may include second and third lien holders. Many banks have streamlined their process and decreased this period to 1-3 months. If a home has been pre-approved for a short sale, the closing period could be further reduced to 2-3 weeks. So if you have the patience, the pay off can be big.
The Californian Estates Buyer’s Guide outlines tips and potential pitfalls to your first purchase. Find out how to find a loan and how to put yourself in a position to receive the best possible terms. Learn how to strategize your home investment to make maximum money. The Buyer’s Guide will introduce you to overlooked items that are critical to consider when choosing your new home and neighborhood? Finally, closing and closing costs are explained so that you can successfully get the deal done with ease so you can get on to the important part of enjoying your home.