Foreclosures vs. Short Sales 101
Foreclosures/REO/Bank owned properties are definitely more desirable in general. Although lately, inventory has been lacking and the competition to buy a property has been strong. My latest client, it took us 5 offers to finally ratify a contract. Not kidding, we lost out on 4 previous offers. We had offered full price, over full price, or even full price with an Escalation Clause... and we were still getting beat by other Buyers.
I've noticed more & more cash buyers as well.
This is a key sign that the market has turned & it's a good time to buy.
Most important is to be prepared on your end as much as possible. From there we set-up searches for your exact requirements, and watch daily. When we get a hit, we go see it same day, and if you like it we put our Offer in right away. This should help increase your odds.
- the sales price is known
- generally sold 'as-is'. You still get a Home Inspection, but it's more for informational purposes, and not to ask the Bank to make any fixes. It will give you a better idea if there are any show-stoppers
- time frame is fast. Bank is highly motivated & wants to close in 30 days or less.
- Earnest Money Deposit, expect a larger amount. Instead of the typical 1%, don't be surprised if you'll need 10k and it must be actually deposited or sent as money order. You can't send only a copy of a check.
- many (Fannie Mae) give priority to non-investors first, for the first 15 days it's listed... after that investors can bid.
-1% earnest money deposit
- will need to sign a commitment that you're willing to wait at least 90 days for an answer. That's 90 days you could wait for nothing.
- generally sold as-is. the seller probably has no $ to make fixes, thus the reason they're trying to Short Sale the property
- time frame can be very long. Bank is not highly motivated. Even longer if there is a 2nd lien on the property to short sale.
- sales price you initially see on Listing is what Seller decided. Bank will pull sold comparables and do a BPO to determine what they'll actually accept.
You'll wait 30 to 60+ days for the Bank to let you know if they'll approve the Short Sale, and if they approve it... at what price.
I had a buyer wait 4 months. The Bank approved the Short Sale, but wanted 16k higher for the Sales Price. My buyer walked. This happens all the time. It's good if you're the next buyer that comes along, because at least NOW you know what the bank will accept.
The point is, we need to do our own homework to see what is a realistic price. The seller's asking price means nothing. Many sellers will low-ball the price so they get a buyer like us to come along & be motivated by what appears to be a great deal. The seller can't start the Short Sale process without a contract, so they need us.
Short Sales can work but you need to have realistic expectations and a LOT of patience & time.
With the way the market has been the past few months I'm not convinced you'll get as great a deal on Foreclosures or Short Sales anyways, only because you will need full asking price or higher just to beat out your competition and get the home.
I think it's worth it to look at regular sales, especially if you plan to rent it out (vs. flipping).
We can pull the rent comparables. we can do the math vs. what your monthly mortgage pmt will be.
First thing you want to do is sit down with a Loan Officer. Find out what Sales Price range you qualify for, AND that you're comfortable with. Making sure you're ok with the estimated monthly payment & cash that would be needed at closing.
Once you do this & get your Approval Letter in hand, we can start seriously monitoring homes and viewing them. Starting with the ideal areas you'd like to purchase in.
I hope this helps. Don't hesitate to reply with any questions.
BJ Matson, Realtor®
Home Buying Expert • RE/MAX
★★★★★ Client Reviews