Short Sale vs. Foreclosure

Real Estate Agent with Weichert Pacific Equity Properties

Did you see the price on that house next door? He paid $400,000 for that two years ago and now the agent is asking $210,000 on a short sale.....What's a short sale?

In my opinion, a short sale is a long shot, or wishful thinking on the part of a desperate seller or determined Realtor. By definition, a short sale is the process of asking your existing lender to accept LESS than the full balance owed on the home. You are effectively  "short" funds to pay the loan off.

The first question is,  why would a lender even consider this type of agreement? Primarily to avoid the much longer more expensive foreclosure process on a home that is usually  in default by the owner, or heading in that direction soon. If a home goes into foreclosure, the lender is at risk of the property becoming damaged, or losing elements of the home to theft. Additionally, the foreclosure process is slow and costly for the bank. Therefore, a short sale may be more acceptable to all involved.  Sounds easy enough, but in reality, it does not happen very often. A majority of the lenders will NOT tell their homeowner or the listing agent  how much "shortage" they are willing to accept up front. Instead, they keep everyone guessing about the discount the bank will accept. The banks will only respond to offers. Therefore, it is up to the listing agent to "guess" what price will attract an offer to the property. What is the best way to get an offer on a home? Drop the price below everyone else and become the lowest priced home on the street. Great! Now you have an offer on your home to submit to your bank for short sale approval. Typically a bank will take about 3-6 + weeks to respond to your offer. By this time most active buyers have moved on to find another home. If the buyer has waited patiently, they will typically find that their short sale offer is rejected or countered back to be something near the price every other home in the neighborhood was asking originally. Hence, you have a very frustrated buyer, seller & realtor, and now the rest of the neighborhood is mad at you for "bringing down" the value of their homes with your short sale listing. Keep in mind, If someone sees your home offered at $210,000 (short sale) and every other similar home offered at $300,000 +/-, you can be darn sure that prospective buyers in your neighborhood will be stuck on the $210,000 price for ALL of these homes. Despite the fact that your home will  NEVER be sold for $210,000, this short sale offering has done some damage to the whole neighborhood value.



How does this compare to a BANK OWNED home?

Now we are in a much better position to get a good value. A bank owned home has already removed the previous homeowner. The home has been lost to foreclosure or some other means and now the bank owns the home outright. The price listed on this house has already been established by the bank as a price they will accept, often still lower than the neighboring homes that are not bank owned. Banks do not like to own vacant properties. They are costly to maintain and subject to vandalism and theft. Therefore, they are very often priced attractively right up front. Does this mean you can still "lowball" an offer to a bank? Sure, you can try. However, my experience lately has shown that the offering price on these homes is already a great deal and many bank owned homes will often receive multiple offers on them, many times above the banks asking price. If you find a bank owned home you like, at a price you can afford, don't play games, jump on it!

Most bank owned home  will still participate in paying for closing costs or contribute to the Nehemiah program so you can get in for $0 out of pocket. This may require that you offer ABOVE asking price to insure that you beat all other offers and the bank ends  up with a NET amount of money  for which they are satisfied.

The NUMBER ONE (#1) key to success in buying ANY home? Pre-approved loan. When you have your pre-approval out of the way and there is NO question you can buy the home you are making an offer on, success will follow!

Jeff Tarbell

Managing Director

Comstock Mortgage




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