First-time home-buyers are just that, first time buyers. Because of that, there can be an assumption that they are not sophisticated enough to purchase anything other than fair market property, but is that true? I try to make sure my first-timers have as much information about fair market, foreclosure and short sale properties as possible to make a well informed property decision. Actually, I use the same information for all buyers. I try to keep it simple, and it looks something like this:
Fair Market Sales
- Typically the easiest to find, finance and close
- Not always the easiest to negotiate
- Can tend to be overpriced, but not always. Can be negotiated with many sellers
- Most Realtors are well versed in the fair market process
- Properties are often not vacant
- Owner impact on the property will be more obvious
- Owner may be willing to make repairs
- Owner may be willing to add closing costs
- Easy to find in today's market
- Financing may be hindered by property condition - may require a renovation loan
- May be damaged by previous owner - or may need more repairs due to previous owner's inability to keep the property up during their financial struggle
- REO companies do not like to do repairs - normally sold "as is" - may do system repairs due to necessity
- Prices tend to be lower because it's a foreclosure
- More room for price negotiation than short sales
- Closing is about the same as Fair Market once a contract is ratified
- REO companies may be willing to add closing costs
- REO companies want things to move swiftly once the contract is ratified - they don't like contingencies
- Buyer may be subject to per Diem fees if he/she is responsible for a delayed closing
- Not all Realtors are familiar with the REO process, but it is easier to learn on the job
- Easy to find in the current market
- Listing price may not have been approved by the lender prior to listing
- Will require more time to secure contract acceptance and ratification - can be as long as 3-6 months, and beyond. There are signs that banks are finally accepting the inevitable and are processing short sales more quickly.
- Just because a seller says yes to a purchase offer doesn't mean that the buyer has a good contract. The third party may not accept the buyer's offer. Then again, the third party may counter the offer.
- The buyer cannot fall in love with the property. There are numerous things that can go wrong. Advise the buyer not to fall in love with anything that can't love him/her back.
- Financing is similar to fair market financing
- If the buyer has the time, patience and money to buy, it can be a great option. Many short sales are equal to and/or lower than foreclosure prices.
- Not a good choice if time is a factor
- Houses tend to be in better condition
- The short sale company will almost never do repairs.
- Short sale companies do not like any contingencies
- Short sale companies almost never offer closing costs
- Short sale companies may try to change the rules at the last minute affecting Realtor compensation and seller contributions to the sale
- Not always vacant
- Not all Realtors are familiar with the short sale process - this can hinder the entire process
All three types of purchase should be considered when looking at homes for any, and all buyers. The buyer's circumstances may be more of a consideration than the type of home purchased.