Short Sales continue to be an issue that buyers have to deal with.

 

If you are looking for a home, chances are you're looking at short sales.  In any price range, there are numerous options and they don't always have to be something to avoid.  However, you want to be working with a realtor who has some experience in short sales or at least has someone they can turn to for assistance. 

Short Sale Defined:

Short sales occur when a home owner has decided to sell their home however, they owe more on the home than the home is worth.   For example, they owe $175,000 and the market value of the home is $150,000.  The sellers' goal is to sell the home and ask the bank to absorb the difference or at a minimum, have the bank open a line of credit or some other loan for the difference, that the home owner then still has to pay back. 

You can see by reading this that the bank is the party that is in control of a transaction like this.  It's important to recognize this because even though the seller may agree to the purchase price that you offer, the bank still has to approve everything.

Be Aware:

We've seen situations where a buyer has paid for an inspection, paid for an appraisal and moved forward with the transaction as though it was a normal transaction...all before the bank has approved the short sale!  Just because the seller has signed the contract, doesn't mean the bank is going to agree to sell the home for that price.  They have a process to go through and each one is different.  Be sure to talk to your realtor about the process with that bank.  Some banks approve the short sale price up front when the seller applies for a short sale; some don't even look at a short sale until there is an offer.

There are some new rules around short sales that certain banks are required to follow.   This may or may not speed up the process for a short sale but it certainly is a step in the right direction. Talk to realtor about the new HAFA rules and whether they will apply to the transaction you are involved in.

Foreclosures/REO's

In addition to short sales you will also see Foreclosures, also called REO's on the market today.  Many people thing Foreclosures are great deals so they look for them specifically.  They can be great deals but there are always things to be aware of anytime you are looking at buying a Foreclosure. 

Foreclosure Defined:

 A Foreclosure/REO is a property that has been taken back from the owner by the bank. The bank now owns the property outright and the previous owner has no level of ownership.   The bank is then selling the property on their own behalf.

Be Aware:

Foreclosure sales can often be purchased in a much shorter timeframe than a short sale (ha ha).  Since your offer is presented directly to the bank (or the management company working with the bank), they often respond within 48-72 hours.  Each bank is different but this is a good rule of thumb.

Foreclosures are most often offered for sale "as is".  The home may be in great condition or very poor condition, but the bank will usually have the "as is" wording either way.  You don't always need to be scared off by those words!  "AS IS" is the banks preferred method of selling the home as they are not in the business of fixing homes.  They would prefer to sell the home in the condition it is, for a price that reflects the condition (good or bad).  That doesn't mean that they will not make repairs.  We have seen situations where the bank that owned the property was prepared to make repairs that the buyers' lender required, or repairs up to a certain dollar value.  Be prepared to ask...all they can do is say no...and they might say yes!

Speaking of financing, this is another area to be aware of when looking at foreclosures. They are sometimes advertised with only cash or conventional financing as options for buying the home.  This may mean that the condition of the home will not meet the requirements of some of the government programs like FHA/VA/USA/Etc.    These programs have standards with respect to health and safety and if the home doesn't meet those standards, it may not be able to be financed this way.  However if you are using one of these financing programs it won't hurt to ask whether the home will meet those standards.  There may be very minor repairs that will then allow it to go through a government program and the bank (owner) may be willing to make those repairs.

Overall, don't be afraid to ask questions of your realtor or the selling realtor.  You want to make sure you are informed and knowledgeable about the home you are buying.

First-Time Home Buying Process Video