When looking to purchase a home whether you are current home owner or a first time home buyer, there are many options. There is a belief that there are bargains available if you look for a short sale, a bank owned property (REO’s), or a for sale by owner (FSBO) property. Each has its pitfalls that make a seeming bargain turn into a problem. Let us look at each type of property.
Short Sale Many people look at a short sale as potential bargain because the home owner has no incentive to price the house as high as possible. The home owner knows that he will be walking away with no money so he will take any offer just to get rid of the house. The problem is the bank that currently holds the mortgage does not look at it that way. The lender will want to recoup as much money as possible and will reject a low ball offer. The other major problem is time. As is well know it takes a long time to get a short sale approved. If the buyer can afford to wait out the process, it may be worth while. However, often times the short sale lender will want to see that the buyer is approved for a mortgage. This means that the buyer must submit a mortgage application and receive a mortgage commitment. While waiting for the short sale approval, the loan commitment may expire which means losing as advantageous interest rate and starting the whole application process all over again.
REO The theory here is that banks do not want to hold onto properties and will look to get rid of them at bargain basement prices. Banks are willing to sell their homes at below market value, but this is because the property is in such bad shape. The previous owner may have vandalized the property before being forced out. In addition, it may have been vacant for such a long time that it has deteriorated. In any event, extensive repairs may be necessary that the buyer cannot afford. Although there are mortgage programs available to finance repairs, this can be time consuming and risky. Banks may not allow the home owner to fully inspect the property and the sales contract can be very one sided in favor of the bank. Purchasing an REO is a large risk/reward proposition.
FSBO Many buyers believe that they can get a bargain by purchasing the property directly from the home owner. The idea is that since there is no real estate broker involved, the seller will ask for less money since there is no realtor commission. More times than not the property will be overpriced because the seller does not have the advice of a real estate professional. The prospective buyer will be looking at houses without knowing if it right for them in either price or style. Using this method, the buyer may waste a lot of time and effort
Looking for a bargain through short sales, foreclosures and for sale by owner is a risky proposition. It is more likely that the buyer will not find what they are looking for and not receive the lower price that justifies the time and effort. With housing prices and interest rates at very low levels, it is best to use a realtor. They can find the best house at the best price. That is the best bargain of all.
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