Purchasing foreclosed properties rather than short sales have various benefits and drawbacks. Tips for first-time homebuyers are included below.
Many home buyers want to get a great real estate deal in this extreme buyer’s market by buying smart. After all, the motto “buy low and sell high” stands true, especially in these down economic times. But unfortunately, buyers can be confused about the difference between a home foreclosure, bank-owned and a short sale. Plus, these terms are frequently misused.
Listed below are the definitions and the comparisons for buyers to make an informed decision on which to purchase.
A foreclosure occurs when the priority lienholder reclaims or repossesses the property. It is now bank-owned. This entity is usually a significant bank, loan company, or mortgage company. The bank, loan company, or foreclosing institution has usually paid any liens or debts attached to the property through the legal process.
Buy properties for less than you owe and receive less for them; this is referred to as a short sale, meaning the seller bought the house initially for, let’s say, $200,000, it has a current loan balance of $150,000, and the market price has now crashed to $100,000. So the home will have to be sold $50,000 “short” of its original loan balance with bank or loan company approval.
Foreclosure vs Short Sale
Transaction time: foreclosure – 30-60 days. A short sale is 60 days to one year.
Price: foreclosure – rock bottom. Short sale – low, but statistically not as every day as foreclosures.
Liens/attached debts: foreclosure – usually satisfied through the legal process. Short sale – possible obligations that new buyers might have to assume, but the current owners are required to disclose if they know about any.
Negotiations to purchase: foreclosure – bank or loan company. Short sales – the current owners of the property and their bank, loan company, or mortgage company.
Condition of the home: foreclosure – typically poor. Short sale: usually good to fair.
Ease of inspections: foreclosure – brutal, as the utilities are not usually on, and the banks aren’t excited about paying to turn them on. A short sale is pretty easy, as the owners are generally still in the home with utilities.
Buyer requested repairs: foreclosures – only material defects. Short sales – possible if current owners are willing to pay for them.
Occupancy: foreclosures – usually vacant. Short sales – usually occupied
Headache factor (scale of 1-10). Foreclosure – 5-6. Short sale – a 10.
Hopefully, this gives buyers a quick picture of what to expect, and from this, they can make a purchase decision armed with information and knowledge.
Good luck!
