A short sale occurs because the amount the owner owes on the house outweighs the house’s value. Owners can avoid foreclosure by going this route, which impacts credit scores less than foreclosures. Short sales are often priced lower than comparable sales.
Foreclosures occur when owners default on the loan by missing multiple payments. The bank publishes the notice of the foreclosure auction.
If the house does not sell at the auction, the property becomes bank owned. At this point, the bank will list and show the house just like the owner would have had he been the one to sell it. The bank can choose to evict the owner or allow him to continue living there until the house sells.
BUYING a Distressed Property is not exactly the same as buying a home traditionally but there is great opportunity to benefit from savings and instant equity when you close.
With SHORT SALES, often times there is a longer period of time in between the tie of offer and the time of closing because the seller needs to present the buyer's offer to the lender that has the home secured with a mortgage. The reason the approval is required is because the offer generally if lower than what is owed on the home leaving the lender SHORT money hence the name "short-sale". The challenge with these deals is that even thought the approval process can seem to drag on, once the lender approves the sale, they typically only allow a very short amount of time to close the sale. Because there is a chance the bank may NOT approve the sale, buyers may be taking a risk paying for inspections and appraisal (if the buyer is getting a mortgage) PRIOR to getting short-sale approval. However, if the buyer waits until short-sale approval is granted, there may not be time to complete inspections, mortgage application and approval including but not limited to appraisal.
When buying a short-sale, having a seasoned real estate agent with short-sale experience is recommended.
With FORECLOSURES, the time between offer to closing can be much faster because the foreclosing bank tends to want to dispose of the property as quickly as possible once arriving to an acceptable offer. These banks will likely amend your traditional purchase contract with their own addendums with strong language benefiting the bank rather than the buyer. If you are not experienced with buying foreclosures, it is recommended that you hire a seasoned real estate professional that will work hard to protect your good faith deposit as well as help you avoid costly pitfalls since most foreclosures as "as-is" sales with sometimes limited opportunity to inspect all components of the home prior to closing. Unlike a home owned by a traditional seller, the foreclosing bank doesn't have the same burden to disclose certain conditions of the home so the buyers should surround themselves with qualified professionals before tapping into foreclosures.
When buying FORECLOSURES at auction, there can be all of the same risks listed in the above paragraph with the addition of potential remaining liens. Additionally, homes bought at auction (not the online auctions but more of the on-site auctions) tend to also require a deposit at about 10% of the value of the home payable by the successful bidder. This 10% deposit requirement is not usually required when buying a foreclosure listed in the MLS (Multiple Listing Service) so if you were planning on obtaining a mortgage with a lower down-payment requirement and don't have a 10% deposit on hand, then on-site auctions may not be for you.
If you have more questions about distressed properties or have interest in buying one or many, contact our team