Will I get a better deal if I buy a Short Sale, Foreclosure or a Regular Seller?
The two primary differences between all three types of sales are the length of time it takes for your offer to get accepted and the amount of information you will be given by the seller. First is the regular sale which is what most people are familiar with. You have a buyer who makes an offer to a seller or sellers. The sellers usually take up to a week or so to review the offer and let the buyer know if its accepted, rejected or if there's a counter offer.
A foreclosure works in a similar fashion. The difference is that you aren't dealing with a seller you might be used to. You're instead dealing with an asset manager of the bank who's an organizer and number cruncher. Many times you are not even dealing with a human being, the offer is "uploaded" in a "system" and a computer selects the best offer based on Price, Financing vs. Cash, type of loan if its financed such as Conventional, FHA, USDA, VA, etc..., Closing Date, Length of Inspection Period and any other added contingencies.
The BIG difference between a regular sale and a foreclosure is the information they will provide to you as a buyer. Because the foreclosure is a bank owned property, and they've never stepped foot in the house, they may have NO idea what's going on, whereas the regular sellers typically have a Sellers Disclosure to view.
A Sellers Disclosure is a multiple question form that the owner will fill out telling a potential buyer everything they know that may affect the value (required by law) A bank will be exempt since they have, iin most cases, never visited the property. In fact most banks have you sign paperwork from them specifically stating you cannot sue them if you find out something is wrong at a later date!
Now the most interesting one -- the “Short Sale”... A short sale means that the owner of the property is underwater on their loan. For example...The owner paid $300k for a house and also got a loan for the full $300k, and currently the home is worth $150k.
Obviously in 99% of cases the owner isn't going to come up with the difference...be it because they don't want to or because they simply don't have the money to do so. If the owner knows they are no longer able to afford the property they put it up for short sale. With a short sale, the sellers may still answer all of the questions on the seller disclosure forms.
However, the big difference is the time frame. A short sale can actually take on average 3 to 6 months, I have even seen a year or more. During this waiting period, the buyers and agents are given little to no information about what is going on - all while your escrow deposit is tied up! Banks have gotten better at approving them in a timely manner, but you're still seeing time frames of about 2-3 months. Luckily, if a short sale has "ALREADY been APPROVED", the time frame drops down to about 3-4 weeks, which isn't nearly as long!!
Now the big questions...which one of the three types of sales are the better bargain???...the foreclosure? The short sale? The regular sale?? The answer is it "depends". The way banks price foreclosures is simple. They ask the local agent that's going to sell the property to estimate what the value is by reviewing the Comparable Sold Properties in the area. The big question the bank's always have is, "How low do we have to go to sell this property in under a month?"
...The answer is almost always "subtract 5%!" So here we have a bank that's going to give about a 5% discount...the reason they don't mind is because at this price range they EXPECT to have MULTIPLE OFFERS...if there are multiple offers, what does that do to the price...? It pushes it upward! So you may actually be paying more than if it was a regular seller.
A regular sale may have the same thinking, but not always. Most sellers want to price it properly and get one to three seriously interested buyers and work with them on getting close to asking price.
Then there's a few that like to overprice to test the waters and leave room for negotiation -- which almost always results in a property that lingers on the market and never gets sold...or gets sold for much much less than they could have gotten in the first place. After a while buyers begin to wonder what's wrong with the house if it's been listed for so long without selling
Finally, the short sale…
The great thing about the short sale pricing is that 99% of the time they don't care what the property fetches for one simple reason...the seller isn't going to make a single penny from the sale!!! In almost every scenario of a short sale the seller simply wants OUT of the situation. The listing agent will typically list a shortsale for a really low price that will look appealing to buyers to get some sort of offer submitted. Keep in mind this is not the "BANK APPRO
VED PRICE". Agents will then submit an offer to the bank to begin the process.
Believe it or not, I have actually seen where the lender came back (after the buyer waited for a year to see if the short sale would be approved by the bank) and denied the short sale of the SELLER because
there was no hardship shown, he just wanted out of his home. So my buyers after a year had to start again from scratch looking for a home.
I would say that the headaches and stress of not knowing if the short sale is going to be approved is really not worth the hassle. You can basically get the same price of another home that is being sold by a regular seller, foreclosure or even new construction. The bank, whether it's a foreclosure or a short-sale, is not going to "give away" a home, they are going to approve a short sale or list a foreclosure based on what the current market value is.
For questions about buying or selling, please contact The Courtney Real Estate Group!
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