Sandy

Buying a pre-foreclosure/short sale home versus a foreclosure can be a very different experience. Here’s a brief run down of the differences between these home purchases:

Pre-Foreclosure/Short Sale

• A short sale occurs when a house is worth less than the outstanding mortgage balance and the seller’s lender accepts less than what is owed on that outstanding mortgage. As an example:
• Seller has a mortgage of $300,000 on their home and the seller is taking a job in a new city
• The home in the current market is now worth $260,000
• A buyer makes an offer on the subject home in the amount of $260,000 with net proceeds to the bank of $245,000 by the time the owner pays real estate commission and seller’s closing costs
• The buyer and seller sign the contract but the offer is subject to the acceptance and approval by the lender. The lender must agree to accept $245,000 vs. $300,000 as the pay off on the subject loan. That’s where the term “short sale” comes from
• Statistics say a lender on average loses about 19% of the outstanding mortgage’s value in a short sale while they lose on average 40% on loans that go into foreclosure.
• Advantages to short sales is also the homeowner(s) are often still in the home therefore the home, both inside and outside will be better maintained than a home in foreclosure which is often either vacant or has short term tenants in it.
• Disadvantages of buying a short sale home is it often takes a long time to negotiate. A typical timeframe averages 4-8 weeks from offer submission before the lender often gets back to you. Then the lender could take another 4-8 weeks to negotiate and get their BPO’s (Broker Price Opinions) on the property. Once agreed upon it will take another four weeks to close.
• Short sales take lots of patience. On average 3-6 months from start to finish. To close a short sale in two months would be really quick while some home take over 9 months.

Foreclosures

• Foreclosed homes are where the lender has already taken the home from the owner
• The lender has taken the home back and is now putting the home on the market for sale
• Often foreclosed homes are vacant or have short term tenants
• More than likely these homes are also in need of repairs. Some work may be minor however many can be extensive such as burst water pipes or inoperable heating/cooling.
• The homes condition eliminates many buyers as lenders won’t loan money on properties that are not habitable.
• Foreclosures are often sold at a greater discount than short sales and buyers typically receive a quicker answer as lenders already have their price opinions done. I’ve received answers on average between 72 hours up to two weeks.
• Foreclosed homes are great for people who have the funds to buy the home as well as the needed repairs. Buyers need to be able to see potential and not be put off by the condition.
• It’s important for buyers to do their homework and calculate all the costs needed to bring the property up. Usually I suggest taking the figure your calculate and then doubling it to make sure you have enough in your budget

Both foreclosures and short short sales can provide a buyer with a great deal, but it is important to understand the difference and the time it will take