Foreclosure Buyers – Avoid Short Sales!

Foreclosure Buyers: Avoid Short Sales!

Most articles you’ll find about Foreclosures and Short Sales are focused on sellers who may be losing their home to foreclosure. However, if you’re a buyer looking for information on what you should purchase, then you need to be aware of the hidden pitfalls and frustration that can come with buying a short sale.

Aren’t Foreclosures and Short Sales essentially the same?

At first glance from a buyer’s point of view, a Foreclosure and a Short Sale (or pre-foreclosure) wouldn’t seem any different. They both are being sold for much less than they were last purchased, the bank gets all the money from their sale and has final say as to how much their acceptable price is, and both are very abundant in this market.

There are however some major differences between Foreclosures and Short Sales buyers should know.

The Foreclosure

- Bank Owned The property has already gone through the foreclosure process, is now owned by the bank and being offered for sale via the agent the bank chose as its representative. All parties involved are interested in negotiating a price that both sides will agree to.

- Realistic list price The bank has already done the work of figuring out what the property is worth and what price will likely get it sold. A foreclosed property isn’t making any money for them and they want to be rid of it as quickly as possible.

- What you see is what you get A foreclosed house will almost assuredly be vacant. This means you can view the property in its entirety and see exactly what you’re getting. If there are repairs needed on the house this will likely have already been factored into the list price.

The Short Sale

- Not Bank Owned A short sale is still owned by the last person / entity who bought it. The owner is either no longer able or no longer willing to make the payments, and they are probably unable to sell their home because the value of the home is now much lower than what they currently owe on their mortgage(s). In this situation, the owner has chosen to try to negotiate a “Short Sale” with their bank. In a Short Sale, the bank allows the seller to sell their home either at or below the current market value and “forgive” the difference.

- List price set low to get multiple offers The price that is listed on a Short Sale property is the price set by the current owner of the house and their listing agent, and in many cases is not even approved by the bank. Because there could be over 30,000 homes on the market, many listing agents will drop the price so that it looks like a great deal, which means many people will want to see it, and will make offers.

- Multiple Counteroffer The listing agent will often receive several offers and may put out a “Multiple Counteroffer” to all the parties who made offers. The Multiple Counteroffer will state that there are several offers on the property and will ask everyone to submit their best and final price. So, after all is said and done, the offers usually end up being much higher than what they were originally asking. Even so, the bank still may or may not approve it!

- Owners or tenants may still be living there With the average vacant foreclosure property you can expect it to be in its current condition when sold, a Short Sale however the sellers will be walking away from the property after the sale with no home, no extra money, a mark on their credit and no incentive to leave the property in good condition. Potentially even worse if there are tenants in the house, they may have gotten very short notice if at all that the house was being sold, and now find themselves in someone else’s house and without a valid lease. Read more »