I've just put a very general description together of the difference on these two different types of sales processes. I still have people asking me weekly what the difference is - so I figured I'd throw this out there. As I said, very general and specific to my own experiences and observations here in Missoula, MT.
The difference between a short sale and a foreclosure
1. Short Sale – Short sales are properties that have not yet been foreclosed on. They may still be occupied by the owner. With these sales the seller is attempting to sell the house for less than what they owe against it. A short sale requires bank approval to complete and can take upwards of 3 to 4 months to close, if not longer.
Positives: In some cases a buyer can negotiate the sales price well below current market value. Banks prefer to do short sales over foreclosures so they are very willing to consider any and all offers. With the property owner still involved in the process a buyer may be able to receive a property condition report and disclosures on prior defects.
Negatives: A lengthy process that involves a lot of waiting around. Some banks can override your offer and accept a different one halfway through the process. Being that the seller’s bottom line is $0 and the bank does not technically own the house asking for repair work or credits to pay closing costs can be very difficult to get approved.
2. Foreclosure – Will also be referred to as “REO” properties these are bank-owned properties that have already been foreclosed on. Each bank is different in its sales process, some will ask for a standard buy-sell, others will provide their own bank documents, and even still others have online offer-submission processes. In most cases the bank acts almost as a normal seller would and there are no long delays like short-sales.
Positives: Much quicker purchase process than short sales. Some banks will provide warranties while others will have actually done work to improve the house to make it saleable. In many situations banks will pay some amount of closing costs if asked and may even complete repairs before closing.
Negatives: Banks will usually not make any disclosures regarding past history or condition of the house and tend to inform buyers they’re purchasing the house “as-is / where-is.” The listing price is usually set by appraisal or Realtor price opinion. In some cases banks are less likely to negotiate from their current asking price.
These are general descriptions for common occurrences with short sales and foreclosures, each sale is unique and will have its own processes and challenges.
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