You've heard that foreclosures and short sales, also known as "distress sales" are the way to go to get ahead in this market. There's a bumper crop of them and you'd like to try your hand at making a profit...you know, buy low, sell high. Maybe you are somewhat handy and think that you can put some work into this little diamond in the rough and then rake in the cash when you sell it. Another term for this is called "flipping". Even if you plan on taking advantage of the current market to get a great deal on a home that you plan on keeping, there's a few myths out there about short sales and foreclosures that need to be de-bunked!
Myth: Short sales and foreclosures are great deals.
Fact: Although you may get a great deal, don't rule out homes that aren't "distress" sales. Sometimes the foreclosures and short sales are in disrepair and will not qualify for certain types of financing.
Fact: Homes that are priced competitively may be a better investment than some short sales or foreclosures. Homes listed as short sales may be priced higher than comparable homes in the same neighborhood because the banks use a percentage of what is owed on the home to determine how low they can go in a short sale. Likewise, a foreclosure may end up being a money pit that you end up spending more than comparables to get it move-in ready.
Fact: Make sure the listing agent on the short sale has already worked with the seller's mortgage company to determine the selling price. This way, the process is not a waste of your valuable time. While you wait to hear about your offer, all the other great deals on homes are being snatched up. When you finally do get an answer, the counter offer is often higher than it was listed for! Additionally, if the seller is not behind in the payments, the bank will not agree to a short sale.
Myth: Short Sales take 4-6 months
Fact: Sure, short sales can take that long if you aren't working with someone that is experienced and can navigate through the process effectively. You should find out first if the list price on the short sale has already been APPROVED by the bank. If it has, you are miles ahead of the pack. I have known of agents that list a home as a short sale because the seller owes more than the home is currently worth, even though the seller is not behind in the payments. If the seller is not delinquent, the bank, generally will not approve the sale. Only in a distress situation will the bank approve selling the home for less than the amount of the mortgage.
So, what's a buyer to do? Work with a Realtor that's experienced in this process and don't rule out homes just because they aren't a short sale or foreclosure. Ask your agent to give you a Market Analysis for homes comparable to the one you're considering! They can be great deals, but don't just assume they are.
There's certainly much more to talk about with respect to distress sales, but I wanted to address a misconception that I kept hearing over and over. Companies even offer to sell people foreclosure lists! You can search foreclosures and short sales for free on my website, but know your options and work with a Realtor that knows the market and can navigate through the process without costing you time and money!