Buying a Short Sale or Foreclosure - The Risk and Reward

The soft real estate market here on the Treasure Coast is attracting a wave of primary and second home buyers who have been sitting on the sidelines waiting for an opportunity to buy a first home, "snowbird" retreat or retirement home. Their patience is being rewarded with an abundance of readily available distresed properties at prices well below the $150,000 mark. These homes are typically short sales and foreclosures, which raises several questions about which type of sale to pursue and at what price.

Short Sale vs Foreclosure
Simply put, a short sale occurs when the seller's lender agrees to a sale for less than the mortgage balance. It is the lender's goal to minimize their loss on the sale. Unless they pre approve the listing price, it can take weeks or months to get an answer on your offer while they perform their due diligence. In the case of a foreclosure, the bank has taken possession of the property and lists it for sale on the MLS. The advantage here is that the bank has established a price; buyers can make offers just like any other home for sale and expect to close with no prolonged waiting period while they consider your offer. Whether a short sale or foreclosure, these homes are sold "as-is" and the bank is only interested in their bottom line.

Negotiating a Pre Aprroved Short Sales or Foreclosure
A pre approved short sale can be as good if not better than a foreclosure. Often the "pre approved" price was derived from a prior offer that fell apart, which may give the buyer a good idea of the bank's expectations.

There is no emotion in negotiating a pre approved short sale or foreclosure. The " pre approved" price is based on the bank's best estimate of value, and is typically determined with a BPO (broker price opinion).  BPO's are provided by real estate agents the bank hires for just this purpose (note: a BPO is not an appraisal).  That said, the bank does not care about inspections or cost of renovation, just getting the best price for the market.  Whether a short sale or foreclosure you are buying the home as-is.  

There are tremendous opportunities today in buying a distressed property as your primary, getaway or retirement home. While there is always risk in any investment, with the proper contingencies you can confidently make an offer knowing that if the house does not appraise or fails inspection you can cancel the deal and get your deposit back.