The Best Deal: Short Sale or Foreclosures?

With distressed properties inundating the market after the real estate boom, many buyers are looking to capitalize on the low prices of homes. However, some are leery of what are reported to be lengthy and difficult transactions. While the true answer of which is the best deal depends on the home buyer's personal situation (how quickly they need to buy, or how much money they have to fix up a home), here are a couple of pros and cons for each type of distressed property.

Time Periods:
Short sales tend to be long transactions, averaging anywhere from 60-90 days.  Programs such as the federal Home Affordable Foreclosure Alternatives (HAFA) are looking to speed up the short sale process.  HAFA's goal is to have a short sale response time in as little as 10 days, but the reality is often longer.

Bank Owned homes usually have about a 30 day transaction, which is significantly less than short sale transactions.  If you need a home quickly, bank owned or traditional sales can be the way to go.

Pricing:
Short sales represent some of the best deals in the housing market, and typically sell for below list price.  While multiple offers on these homes are becoming more prevalent in our current Phoenix metro certain price ranges. Short sales that are tenant occupied can be an investor's dream, increasing cap rates since there will be no fix up or tenant vacancy expenses.

Bank Owned are often getting into bidding wars, and are currently selling for an average of 105% of list price. 

Condition:
Most short sale homes are occupied by the owner (although there are a few that are vacant), so they tend to be in a more livable condition than foreclosures.  For the most part, utilities, landscaping, and other features in the home have been maintained.

While some foreclosure homes are stripped of appliances, ceiling fans, and other amenities, many are in good condition.  However, vacant homes can deteriorate quickly, so nearly all Bank Owned will have greater a fix-up expense in order to make the home move-in ready.

Transaction Process:
Short sales are contingent upon the seller and the seller's lender reaching an agreement for the terms of the contract, which doesn't always happen.  However, the buyer will receive their earnest money back if the seller and the seller's lender are unable to reach an agreement, and at that time will not have spent the money for a home inspector or appraiser.

Foreclosures have their own addendums which supersedes the Arizona Association of Realtor's Residential Purchase Contract.  Buyers may have to turn on utilities at their own expense for the inspection period. They are sold in as-is condition and the price may not be lowered to appraised value, leaving earnest funds at risk.

These are only a few of the differences between short sales and foreclosures, and getting the best deal is dependent on each buyer's needs.  The McKinley Group is a trained team of professionals who will be able to advise and help you chose a home which best fits your personal situation.  Contact us today!